Need help please. I know the answer but don\'t know how to get the answer. Quest
ID: 2417412 • Letter: N
Question
Need help please. I know the answer but don't know how to get the answer. Question 27 Seasons Construction is constructing an office building under contract for Cannon Company. The contract calls for progress billings and payments of $1,240,000 each quarter. The total contract price is $14,880,000 and Seasons estimates total costs of $14,200,000. Seasons estimates that the building will take 3 years to complete, and commences construction on January 2, 2014. Seasons Construction completes the remaining 25% of the building construction on December 31, 2016, as scheduled. At that time the total costs of construction are $15,000,000. What is the total amount of Revenue from Long-Term Contracts and Construction Expenses that Seasons will recognize for the year ended December 31, 2016? Revenue Expenses O $14,880,ooo o $3,720,000 o $3,750,000 O $3,720,000 $15,000,000 $3,750,000 $3,750,000 4,200,000
Explanation / Answer
The question seems to be part of series of questions based on one situation. The question says that the remaining 25% part of the building is completed on December 31,2016. It means theat in the other questions of the series, details about completion for the initial 75% completion is given.
The revenue portion can be found as below:
Total revenue = $14,880,000
Percentage completed in 2016 = 25%
Revenue to be recognised in 2016 = $14,880,000 * 25% = $3,720,000
However the cost part can be found out by substracting the cost already recognised from the actual cost.
Total actual cost == $15,000,000
Assuming that the cost of $10,800,000 has laready been recognised while completion of 75% of building
Cost to be recognised in 2016 = $15,000,000 - $10,800,000 = $4,200,000
Hence answer is Revenue $3,720,000 Expenses $4,200,000
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