Hutton Construction specializes in the construction of commercial and industrial buildings. The contractor is experienced in bidding long-term construction projects of this type, with the typical project lasting fifteen to twenty-four months. The contract

Hutton Construction specializes in the construction of commercial and industrial buildings. The contractor is experienced in bidding long-term construction projects of this type, with the typical project lasting fifteen to twenty-four months. The contract

Hutton Construction specializes in the construction of commercial and industrial buildings. The contractor is experienced in bidding long-term construction projects of this type, with the typical project lasting fifteen to twenty-four months. The contractor uses the percentage-of-completion method of revenue recognition since, given the characteristics of the contractor’s business and contracts, it is the most appropriate method. Progress toward completion is measured on a cost to cost basis. Hutton began work on a lump-sum contract at the beginning of 2014. As bid, the statistics were as follows:

Lump-sum price (contract price) $4,000,000

Estimated costs

Labor $ 850,000

Materials and subcontractor 1,750,000

Indirect costs 400,000 3,000,000

$1,000,000

At the end of the first year, the following was the status of the contract:

Billings to date $2,230,000

Costs incurred to date

Labor $ 464,000

Materials and subcontractor 1,098,000

Indirect costs 193,000 1,755,000

Latest forecast total cost 3,000,000

It should be noted that included in the above costs incurred to date were standard electrical and mechanical materials stored on the job site, but not yet installed, costing $105,000. These costs should not be considered in the costs incurred to date.

(a) Compute the percentage of completion on the contract at the end of 2014.

(b) Indicate the amount of gross profit that would be reported on this contract at the end of 2014.

(c) Make the journal entry to record the income (loss) for 2014 on Hutton’s books.


4. Computation of selected ratios.

The following data is given:

December 31,

2013 2012

Cash $ 66,000 $ 50,000

Accounts receivable (net) 68,000 60,000

Inventories 90,000 110,000

Plant assets (net) 383,000 325,000

Accounts payable 57,000 40,000

Salaries and wages payable 10,000 5,000

Bonds payable 70,000 70,000

10% Preferred stock, $40 par 100,000 100,000

Common stock, $10 par 120,000 90,000

Paid-in capital 80,000 65,000

Retained earnings 170,000 175,000

Net credit sales 800,000

Cost of goods sold 600,000

Net income 80,000

Instructions

Compute the following ratios:

(a) Acid-test ratio at 12/31/13

(b) Receivables turnover in 2013

(c) Inventory turnover in 2013

(d) Profit margin on sales in 2013

(e) Rate of return on common stock equity in 2013


Price: £ 45

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