Noah Construction Company Is Building a Large Complex for a Contract

Multiple Choice

Noah Construction Company is building a large complex for a contract price of $5,000,000. This is a three-year project estimated to cost $4,000,000 and the following information is available:
$\begin{array}{llll}(\$ \text { in thousands) } & \text { Year 1 } & \text { Year 2 } & \text { Year 3 }\\\text { Costs incurred } & \$ 1,000 & \$ 1,500 & \$ 1,250 \\\text { Estimated completion costs } & \$ 3,000 & \$ 1,500 & \$ 10 \\\text { Billings } & \$ 750 & \$ 1,750 & \$ 2,500 \\\text { Cash collected } & \$ 500 & \$ 1,500 & \$ 3,000\end{array}$
-Which one of the following entries would be made in Year 1 to record the income recognized using the percentage-of-completion method of revenue recognition?

A) $\begin{array}{lr}\text { DR Inventory: Construction in progress } & 250,000 \\\text { DR Construction expense } & 1,000,000\\\text { CR Construction revenue }&1,250,000\end{array}$
B) DR Inventory: Construction in progress $\quad 375,000$
CR Billings on construction in progress \quad 375,000\C) DR Inventory: Construction in progress \(\quad 675,000
CR Billings on construction in progress $\quad$ 675,000
D) DR Income on long-term construction contract $\quad 3,125,000$
CR Accounts payable, cash, etc. $\quad$$3,125,000$