Question 1

Riverside Corp. enters into a contract to construct a building for $3,000,000. The contract is expected to take 3 years to complete. At the end of Year 1:
- Costs incurred to date: $900,000
- Estimated costs to complete: $1,800,000
- Billings to customer: $800,000
- Cash collected: $750,000

Using the percentage-of-completion method, how much revenue should Riverside recognize in Year 1?

Accepted Answer

Calculate percentage complete as costs incurred to date divided by total estimated costs (incurred + estimated to complete). Multiply this percentage by total contract price to determine cumulative revenue to be recognized.

Question 2

What mistakes do candidates make on this CPA question?

Accepted Answer

Using billings or cash collections for revenue recognition, not including estimated costs to complete in total costs, or applying percentage to costs instead of contract price

How to approach this question

Full Answer

Common mistakes

Practice the full CPA FAR Practice Exam 2

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