Noah Construction Company Is Building a Large Complex for a Contract

question 117

Multiple Choice

Noah Construction Company is building a large complex for a contract price of $5,000,000. This is a three-year project estimated to cost $4,000,000 and the following information is available:
$\begin{array}{llll}(\$ \text { in thousands) } & \text { Year 1 } & \text { Year 2 } & \text { Year 3 }\\\text { Costs incurred } & \$ 1,000 & \$ 1,500 & \$ 1,250 \\\text { Estimated completion costs } & \$ 3,000 & \$ 1,500 & \$ 10 \\\text { Billings } & \$ 750 & \$ 1,750 & \$ 2,500 \\\text { Cash collected } & \$ 500 & \$ 1,500 & \$ 3,000\end{array}$
-Which one of the following entries would be made in Year 1 to record the costs incurred using the percentage-of-completion method of revenue recognition?

• A) DR Inventory: Construction in progress \(\quad\)\(\quad\)\(1,000,000\)
• CR Accounts payable, cash, etc.\(\quad\)\(\quad\)\(1,000,000\)
• B) DR Inventory: Construction in progress \(\quad 1,000,000\)
• CR Income on long-term construction contract\(\quad 1,000,000\)
• C) DR Inventory: Construction in progress \(\quad 1,000,000\)
• CR Billings on construction in progress\(\quad 1,000,000\)
• D) DR Income on long-term construction contract \( \quad 1,000,000 \)
• CR Accounts payable, cash, etc. \( \quad 1,000,000 \)

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Definitions:

Mutual Investment

A cooperation or partnership model where two or more parties invest resources, such as time, money, or expertise, towards a common goal or venture.

Profit Sharing

A compensation model where employees receive a share of the company's profits on top of their regular salary, typically based on predetermined criteria.

ELMS System

An acronym for a specific system or methodology, potentially standing for an educational or technological process or tool, requiring further context for precise definition.

80/20 Principle

A principle, also known as the Pareto Principle, that suggests 80% of effects come from 20% of causes, applied in various business contexts.