Analysis of Percentage-of-Completion Financial Statements

In 2007, Landers Construction Corp. began construction work under a 5-year contract. The contract price was $25,000,000. Landers uses the percentage-of-completion method for financial accounting purposes. The income to be recognized each year is based on the proportion of cost incurred to total estimated costs for completing the contract. The financial statement presentations relating to this contract at December 31, 2007, follow.

Balance Sheet

Accounts receivable-construction contract billings

150,500

Construction in progress

650,000

Less: Contract billings

260,000

Cost of uncompleted contract in excess of billings

Income statement

Income (before tax) on the contract recognized in 2007

130,000

Instructions

(a) How much cash was collected in 2007 on this contract?

(b) What was the initial estimated total income before tax on this contract?