Question 1

On January 1, Year 1, Contractor Co. enters a contract to build a bridge for $10,000,000. The estimated cost is $8,000,000.
Year 1 Actual Costs: $2,000,000.
Year 1 Billings: $1,800,000.
Year 1 Cash Collected: $1,500,000.
Using the percentage-of-completion (input) method, what is the Current Asset (Contract Asset) or Current Liability (Contract Liability) reported at year-end?

Accepted Answer

Net Position = (Cumulative Costs + Cumulative Gross Profit) - Cumulative Billings.
If Positive -> Contract Asset (CIP > Billings).
If Negative -> Contract Liability (Billings > CIP).

Question 2

What mistakes do candidates make on this CPA question?

Accepted Answer

Comparing Costs to Billings (ignoring profit). Comparing Revenue to Cash Collected.

How to approach this question

Full Answer

Common mistakes

Practice the full CPA FAR Practice Exam 3

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