Tullis Construction Enters into a Long-Term Fixed Price Contract to Build

Tullis Construction enters into a long-term fixed price contract to build an office tower for $10,700,000. In the first year of the contract Tullis incurs $3,000,000 of cost and the engineers determined that the remaining costs to complete the project are $5,000,000. Tullis billed $4,000,000 in year 1 and collected $3,500,000 by the end of the end of the year. How should Tullis report Construction in Progress and Billings on Construction in Progress at the end of year 1 on the balance sheet assuming the use of the completed-contract method?

A) liability of $1,000,000
B) asset of $1,000,000
C) asset of $500,000
D) liability of $500,000

Correct Answer:

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