Noah Construction Company Is Building a Large Complex for a Contract

question 49

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 3 to record the completion and acceptance of the project using the completed-contract method of revenue recognition?

• A) DR Inventory: Construction in progress\(\quad\)\(5,000,000\)
• CR Billings on construction in progress\(\quad\)\(5,000,000\)
• B) DR Billings on construction in progress \(\quad 5,000,000\)
• CR Inventory: Construction in progress\(\quad\)\(3,750,000\)
• CR Income on long-term construction contract\(\quad\)\(1,250,000\)
• C) DR Inventory: Construction in progress \(\quad 3,750,000\)
• DR Income on long-term construction contract \(\quad 1,250,000\)
• CR Billings on construction in progress\(\quad\)\(5,000,000\)
• D) DR Billings on construction in progress\(\quad\)\(\quad\)\(1,250,000\)
• CR Inventory: Construction in progress\(\quad\)\(\quad\)\(1,250,000\)

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Definitions:

Expected Growth Rate

Represents the anticipated annual rate at which an investment, company, or economy will grow over a specified period.

Rate of Return

The gain or loss of an investment over a specific period, expressed as a percentage of the investment's initial cost.

Dividend

A portion of a company's earnings distributed to its shareholders, usually in the form of cash or stock.

Expected Growth Rate

The anticipated rate at which a company, asset, or economy is expected to grow in the future.