[Peachey]

Janelle Construction uses the completed-contract method for long term construction contract. The information for a specific contract as of Jan 1 2007:

Cost incurred to date... $700,000
Contract price... $2,000,000
Estimated remaining cost to complete... $800,000

$600,000 of cost was incurred during 2007 and on Dec 31, 2007 the estimated remaining cost to complete was still $800,000. The correct balance for the Construction in Progress at Dec 31, 2007.

This is my working: 2,000,000 - 600,000 - 700,000 = 700,000

[Peachey]

Am I correct?

[morgaine300]

Posting again really isn't going to help - anyone who reads this knows you want to know if you're correct.

Construction contracts is something I don't get into, so I can't answer. And sometimes we can't, which is why you don't hear anything - it's not necessarily because you're being ignored.

[Peachey]

Sorry I forgot I posted it, because we got a lot of new leaflets to workout and with you help I got out a lot of them. Thank you anyway.

[paraclete]

You have arrived at the right answer by the wrong means the answer is 700000 because this is the amount actually expended

[morgaine300]

You have arrived at the right answer by the wrong means the answer is 700000 because this is the amount actually expended

But if Construction in Progress is some type of asset account (like Work in Process for manufacturing), then there's both costs of 700,000 as of 1/1/07 (incurred prior to that point in time), plus another 600,000 incurred during 2007. 1,300,000 total.

As I said, I don't know construction methods, but assuming Construction in Progress isn't an expense account (which would be only 600,000 for 2007), and is the "actual amount expended" as you said, there'd be a total of 1,300,000 in there, right?

[ArcSine]

I agree with morgaine300... I think the key is in Peachey's opening line that the completed contract method is being used here. With the CC method for long-term contracts (as opposed to percentage-of-completion), the construction costs are simply accumulated on the balance sheet until the contract is completed and closed.

Upon completion, all the revenue is recognized, and all of the accumulated costs are then transferred from the Bal Sheet to the PnL as a cost-of-sale item.

The statement that there are costs remaining to be incurred as of 2007 Dec 31 cinches it that the project hasn't yet completed. I'd think that as of that date the Bal Sheet should have an asset Construction In Progress standing at $1.3M, as morgaine300 said.

Best of luck, Peachey... I hope that helped a bit.

[Peachey]

Thank you a lot and thanks for the explanation.