In late April, the Acme Construction Co. submitted a $1,200,000 progress billing on a construction contract. On May 2, the bill was approved for payment, subject to a ten percent retention, as provided by the contract. The amount that should be debited to Construction Expenditures is:

$ 0.
$ 12,000.
$1,080,000.
$1,200,000.

The answer is $1,080,000

Explanation :

Step one :

Since the said approved amount is

$1,200,000 and it is subject to 10% retention

10%of $1,200,000=

10/100*$1,200,000=$120,000

Step two:

The amount that should be debited to Construction Expenditures is approved amount

$1,200,000 minus 10% retention amount

$1,200,000-$120,000

$1,080,000

$1,080,000

Explanation:

Progress billing submitted on the construction contract = $1,200,000

If the bill was approved to 10% retention, the retention amount will be 10% of $1,200,000

Retention amount = 10/100×$1,200,000

Retention amount = $120,000

Amount debited to construction expenditure = Initial billing - retention amount

Amount debited to construction expenditure = $1,200,000 - $120,000

Amount debited to construction expenditure = $1,080,000

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