314 Haverford (Mar/Jun 18)

Dear tutors,

I have one problem with this question:

(ii) During the year, Haverford Co entered into a contract to construct an asset for a customer, satisfying the
performance obligation over time. The contract had a total price of $14million. The costs to date of
$1·9million is included in the above trial balance. Costs to complete the contract are estimated at
$7·1million.
At 31 December 20X7, the contract is estimated to be 40% complete. To date, Haverford Co has received
$1·4million from the customer and this is shown in the above trial balance.

According to how I understand, this will create effects on AR as follows:

DR AR 14000*0,4 = 5600
CR Sales revenue 5600

DR Cash 1400
CR AR 1400

The AR on SOFP is 5510. I think that the above entries have not been recorded so I add 5600 to and minus 1400 from the AR. However, the answer states that the AR is still equal to 5510. No adjustment is needed for the AR.

I want to ask how I can point out whether the original number in the question needs to be adjusted or not because the question makes me misunderstand that the original number is affected by the notes.

I look forward to receiving your answer.

Thanks a lot.

Have a nice week.