Klondike Construction Company is building a highway under a three-year construct
ID: 2427063 • Letter: K
Question
Klondike Construction Company is building a highway under a three-year construction contract. Klondike will receive $11,200,000 for building five miles of highway. Klondike estimates that it will incur $10,000,000 of costs before the contract is completed. At the end of year one, Klondike had incurred $3,000,000 of contract costs.
a. How much income from the contract must Klondike report for year one?
b. Assume Klondike incurs an additional $5,000,000 of costs during the second year. How much income should be reported for that year?
c. If Klondike incurs another $2,500,000 of costs in the third and final year of the contract, how much income must Klondike report for the third year.
d. Will Klondike receive or pay look-back interest? Explain.
Explanation / Answer
$260,000
The Klondike will receive interest back AS the computation reveals an overpayment.
Detail Amount Revenue $ 11,200,000.00 Cost $ 10,000,000.00 Profit $ 1,200,000.00 1 Cost Incurred $ 3,000,000.00 compleion of contract Cost incurred/total cost to incurred = 30% Income for 1 year total profit*%completion of work $ 360,000.00 2 Additional cost incurred $ 5,000,000.00 compleion of contract Cost incurred/total cost to incurred = 50% Income for 2 year total profit*%completion of work $ 600,000.00 3 Additional cost incurred $ 2,500,000.00 Total cost incurred in all 3 years $ 10,500,000.00 Profit Revenue-cost $ 700,000.00 Profit already recognised $ 960,000.00 need to record Loss$260,000
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.