In 2002, construction work began on a three-year contract at a price of $7,525,000. The firm uses the percentage-of-completion method of financial accounting purposes. The income to be recognized each year is based on the proportion of cost incurred to the total estimated costs for completing the contract. The financial statement presentations relating to this contract on December 31, 2002, are
Balance Sheet
Accounts Receivable $150,500
Construciton in progress $602,000
Less progress billings 562,000
Income Statement
Gross profit on construct. contracts $310,000
Determine the
a. Cash collected in 2002
b. Esitmated income on the construction contract
To determine the cash collected in 2002, we need to analyze the information provided. The balance sheet shows the accounts receivable and progress billings for the construction contract.
a. Cash collected in 2002:
To calculate the cash collected in 2002, we subtract the progress billings from the accounts receivable:
Cash collected in 2002 = Accounts Receivable – Progress Billings
Cash collected in 2002 = $150,500 - $562,000
Cash collected in 2002 = -$411,500
Based on the provided information, it seems that the firm collected more cash than what was billed for the construction project in 2002. However, negative cash collected suggests that some adjustments or additional information might be required to accurately determine the cash collected in 2002.
b. Estimated income on the construction contract:
To calculate the estimated income on the construction contract, we need to know the total estimated costs for completing the contract and the cost incurred so far.
The income to be recognized each year is based on the proportion of cost incurred to the total estimated costs for completing the contract. Since the year 2002 is the starting year, we need additional information about the total estimated costs and the cost incurred to determine the estimated income for that specific year.
Without knowing the initial estimated costs or the cost incurred in 2002, it is not possible to calculate the estimated income on the construction contract for that year.