Question

In 2020, Cement Inc. began a three year construction contract for $3,500,000. Cement uses the percentage-of-completion method. The income to be recognized each year is based on the proportion of costs incurred to total estimated costs for completing the contract. The financial statement presentation relating to this contract for calendar 2020 follow:

Statement of Financial Position
Current Assests:
Accounts receivable				$150,000
Contract asset/liability				105,000
(Contract costs $425,000 less Billings of $320,000)
Income Statement
Income (before tax) on the contract recognized in 2020				$105,000

How much cash was collected in 2020 on this contract?

Answer 1

Solution: $170,000

Working:

Accounts receivable—construction contract billings		150,000
Construction in progress	425,000
Less contract billings	320,000
Costs and recognized profit in excess of billings		105,000
Income Statement
Income (before tax) on the contract recognized in 2018		105,000

Cash collected = 320,000 - 150,000 = 170,000