Analysis of Percentage-of-Completion Financial Statements
Response to the following problem:
In 2014, Steinrotter Construction Corp. began construction work under a 3-year contract. The contract price was $1,000,000. Steinrotter uses the percentage-of-completion method for financial accounting purposes. The income to be recognized each year is based on the proportion of cost incurred to total estimated costs for completing the contract.
The financial statement presentations relating to this contract at December 31, 2014, are shown below.
Balance Sheet
Accounts receivable $18,000
Construction in process $65,000
Less: Billings 61,500
Costs and recognized profit in excess of billings 3,500
Income Statement
Income (before tax) on the contract recognized in 2014 $19,500
(a) How much cash was collected in 2014 on this contract?
(b) What was the initial estimated total income before tax on this contrac