Noah Construction Company Is Building a Large Complex for a Contract

question 84

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 income recognized using the percentage-of-completion method of revenue recognition?

• A) \(\begin{array}{lr}
• \text { DR Inventory: Construction in progress } & 250,000 \\
• \text { DR Construction expense } & 1,000,000\\
• \text { CR Construction revenue }&1,250,000
• \end{array}\)
• B) DR Inventory: Construction in progress \(\quad 375,000\)
• CR Billings on construction in progress\(\quad 375,000\
• C) DR Inventory: Construction in progress \(\quad\)675,000
• CR Billings on construction in progress \(\quad\)675,000
• D) DR Income on long-term construction contract \(\quad 3,125,000\)
• CR Accounts payable, cash, etc.\(\quad\)\(3,125,000\)