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41) Which statement about the percentage of completion method is correct?

A) This method recognizes revenue on a straight-line basis.

B) This method can only be used if there are no uncertainties about how much the contract will cost or how long it will take to complete.

C) This method allocates revenue, not construction costs.

D) This method allocates construction costs, not revenue.

42) Ying Construction Company entered into a contract to build a new airport terminal for $2,500,000. Construction commenced on August 1, 2011, with a planned completion date of December 31, 2013. A summary of the costs, billings, and collections is provided below:

 

2011

2012

2013

Costs incurred during the year

500,000

700,000

1,100,000

Estimated costs to complete at year end

1,500,000

1,200,000

0

Billings during the year

440,000

1,000,000

1,060,000

Cash collections during the year

400,000

900,000

1,200,000

Ying uses the percentage of completion method. What amount would appear as accounts receivable on Ying's December 31, 2012 balance sheet?

A) $100,000

B) $140,000

C) $1,000,000

D) $1,400,000

43) Yang Construction Company entered into a contract to build a new airport terminal for $2,500,000. Construction commenced on August 1, 2011, with a planned completion date of December 31, 2013. A summary of the costs, billings, and collections is provided below:

 

2011

2012

2013

Costs incurred during the year

500,000

700,000

1,100,000

Estimated costs to complete at year end

1,500,000

1,200,000

0

Billings during the year

440,000

1,000,000

1,060,000

Cash collections during the year

400,000

900,000

1,200,000

Yang uses the percentage of completion method. How much gross profit would Yang recognize in 2012?

A) $100,000 loss

B) $75,000 loss

C) $50,000 profit

D) $100,000 profit

44) Early in 2011, Forest Ltd. signed a contract to construct a warehouse. Forest's management estimated the gross profit on the contract to be $740,000, as indicated by the following:

Contract price

$3,500,000

Estimated costs

  2,760,000

Estimated gross profit

$740,000

At the end of 2011, the status of the work on the contract was as follows:

Costs incurred to date

$1,350,000

Estimated costs to complete

  1,650,000

How much revenue can be recognized on this contract for 2011, assuming that Forest uses the

percentage-of-completion basis for long-term construction contracts (round to nearest dollar)?

A) $333,000

B) $863,333

C) $1,575,000

D) $1,711,957

45) Pool Contractors (PC) entered into a contract to build a solar heated swimming complex for $1,800,000. Construction commenced on July 1, 2011, with a planned completion date of December 31, 2013. A summary of the related accounting information is provided below:

 

 

2011

2012

2013

Costs incurred during the year

400,000

500,000

650,000

Estimated costs to complete at year end

1,200,000

600,000

0

Billings during the year

560,000

640,000

600,000

Cash collections during the year

500,000

310,000

990,000

How much gross profit would be recognized in fiscal 2012 if PC uses the percentage-of-completion method?

A) $50,000

B) $100,000

C) $130,000

D) $180,000

46) Nichols Construction Company (NCC) entered into a contract to build a shopping complex for $1,900,000. Construction commenced on July 1, 2011, with a planned completion date of December 31, 2013. A summary of the related accounting information is provided below:

 

 

2011

2012

2013

Costs incurred during the year

400,000

500,000

650,000

Estimated costs to complete at year end

1,200,000

600,000

0

Billings during the year

560,000

640,000

600,000

Cash collections during the year

500,000

310,000

990,000

How much would the balance in accounts receivable be on the balance sheet of NCC at the end of 2012 if NCC uses the percentage-of-completion method?

A) $130,000

B) $290,000

C) $790,000

D) $1,100,000

47) Nova Construction Company (NCC) entered into a contract to build a school for $1,800,000. Construction commenced on May 1, 2011, with a planned completion date of December 31, 2013. A summary of the related accounting information is provided below:

 

 

2011

2012

2013

Costs incurred during the year

400,000

500,000

650,000

Estimated costs to complete at year end

1,200,000

600,000

0

Billings during the year

560,000

640,000

600,000

Cash collections during the year

500,000

310,000

990,000

How much gross profit would be recognized in fiscal 2011 if NCC uses the percentage-of-completion method?

A) $50,000

B) $100,000

C) $130,000

D) $180,000

48) Tyco Ltd entered into a contract to build a sports arena for $1,800,000. Construction commenced on August 1, 2011, with a planned completion date of December 31, 2013. A summary of the related accounting information is provided below:

 

 

2011

2012

2013

Costs incurred during the year

400,000

500,000

650,000

Estimated costs to complete at year end

1,200,000

600,000

0

Billings during the year

560,000

640,000

700,000

Cash collections during the year

500,000

310,000

990,000

How much would the balance in accounts receivable be on the balance sheet of Tyco at the end of 2011 if Tyco uses the percentage-of-completion method?

A) $110,000

B) $160,000

C) $500,000

D) $660,000

49) Nichols Construction Company (NCC) entered into a contract to build a shopping complex for $1,900,000. Construction commenced on July 1, 2011, with a planned completion date of December 31, 2013. A summary of the related accounting information is provided below:

 

 

2011

2012

2013

Costs incurred during the year

400,000

500,000

650,000

Estimated costs to complete at year end

1,200,000

600,000

0

Billings during the year

660,000

440,000

800,000

Cash collections during the year

500,000

310,000

800,000

How much would the balance in accounts receivable be on the balance sheet of NCC at the end of 2013 if NCC uses the percentage-of-completion method?

A) $0

B) $250,000

C) $290,000

D) $800,000

50) Which statement best explains the completed contract method?

A) An accounting method that recognizes revenue and expenses on a contract in proportion to the degree of progress.

B) An accounting method that recognizes revenue and expenses on a contract in proportion to the degree of progress.

C) An accounting method that recognizes an amount of revenue equal to the costs that are expected to be recovered on the contract.

D) An accounting method that recognizes revenue and expenses based on the fair value of the contract.

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