Arizona Desert Homes (ADH) constructed a new subdivision during 2017 and 2018 under contract with Cactus Development Co. Relevant data are summarized below:
Contract amount $ 3,000,000
Cost: 2017 1,200,000
2018 600,000
Gross profit: 2017 800,000
2018 400,000
Contract billings: 2017 1,500,000
2018 1,500,000
ADH recognizes revenue over time with respect to these contracts.
In its December 31, 2017, balance sheet, ADH would report:
A) The contract asset, cost and profits in excess of billings, of $500,000.
B) The contract liability, billings in excess of cost, of $300,000.
C) The contract asset, contract amount in excess of billings, of $1,500,000.
D) The contract asset, deferred profit, of $400,000.
Answer: A
Explanation:
Cost + profits: $1,200,000 + 800,000 = $ 2,000,000
Billings: 1,500,000
Excess: 500,000
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