34、Assume U.S. GAAP (generally accepted accounting principles) applies unless otherwise noted.

A company entered into a three-year construction project with a total contract price of $5.3 million and expected cost of $4.4 million. The following table provides cash flow information relating to the contract:

     Year 1   Year 2   Year 3

Costs incurred and paid     $600,000     $3,000,000 $800,000

Amounts billed and payments received    $1,200,000 $2,800,000 $1,300,000

What is the cumulative effect of the contract on the cash balance that would have been recorded on the company's balance sheet at the end of Year 2 using the:

      percentage-of-completion method?   completed contract method?

A.   $400,000      $0

B.    $400,000      $400,000

C.   $2,800,000   $0

D.   $2,800,000   $400,000

A. Answer A

B. Answer B

C. Answer C

D. Answer D

答案和详解如下：

34、Correct answer is B

"Understanding the Income Statement," Thomas R. Robinson, Hennie van Greuning, Elaine Henry, and Michael A. Broihahn

2008 Modular Level I, Vol. 3, 148-151

Study Session 8-32-b

explain the general principles of revenue recognition and accrual accounting, demonstrate specific revenue recognition applications (including accounting for long-term contracts, installment sales, barter transactions, and gross and net reporting of revenue) and discuss the implications of revenue recognition principles for financial analysis

The amount of cash recorded is identical for both methods and is equal to the total cash received less total costs incurred. At the end of Year 2, a total of $4 million had been billed and collected but only $3.6 million in costs had been incurred.