 # % of Completion

A research analyst has collected the following information regarding a long-term construction project. The company uses the percentage-of-completion methodology to account for this project: Invoiced Amounts A/R Collections Construction Expenses 2004 \$1,000 \$800 \$700 2005 \$500 \$600 \$500 2006 \$500 \$600 \$400 Total \$2,000 \$2,000 \$1,600 Given this information, the net constuction-in-progress balance sheet value at the end of 2005 equals: A 0 B 400 C 500 D 600

1500 - 1200 + 200 = C i feel clumsy again, whats the answer

I would say is A, zero.

map1 Wrote: ------------------------------------------------------- > I would say is A, zero. you are probably right. what’s the reason behind it.

B

I have never seen this for % of completion, only the related revenues and expenses for IS

The construction in progress amount is 1200 (700 + 500) added to the percentage of expenses completed 1200/1600 times construction expenses remaining 400. 1500 The amount of expenses invoiced by the end of 2005 is 1000 + 500 1500 1500-1500 = 0

This is very much part of the course, I think it’ll be A too as there is no gain to record in teh first 2 years as your received lags your receivables.

KJH Wrote: ------------------------------------------------------- > The construction in progress amount is 1200 (700 + > 500) added to the percentage of expenses completed > 1200/1600 times construction expenses remaining > 400. 1500 > The amount of expenses invoiced by the end of 2005 > is 1000 + 500 1500 > > 1500-1500 = 0 need to review this HARDCORE.

can someone go through this again step by step

crap just got it nevermind

The way I thought of it: profit margin of the project: (2000-1600)/2000=20% at the end of the second year, invoiced 1000+500=1500, executed 700+500=1200 Since this is % of completion, the profit margin at the end of year 2 has to be the same as the project profit margin, if not there is inventory construction in progess (1500-1200)/1500=20%, so there’s no construction in progress

I thought of that add the beginning then I got confused because I have only used % of completion for Income Statements. WHen I got it I thought of it as 700+500= 1200 % completed= 1200/1600= 75% 2000* .75= 1500 invoiced amounts-completed = 1500-1500= 0