On June 15, 2016, Sanderson Construction entered into a long-term construction c

Question

On June 15, 2016, Sanderson Construction entered into a long-term construction contract to build a baseball stadium in Washington, D.C. for $250 million. The expected completion date is April 1, 2018 just in time for the 2018 baseball season. Costs incurred and estimated costs to complete at year-end for the life of the contract are as follows ($ in millions): Costs incurred during the year Estimated costs to complete as of December 31 2016 2017 2018 $ 80 $40 $30 120 30 _ Required: 1. Compute the revenue and gross profit will Sanderson report in its 2016, 2017, and 2018 income statements related to this contract assuming Sanderson recognizes revenue over time according to percentage of completion. (Enter your answers in million. Use percentages as calculated and rounded in the table below to arrive at your final answer. Losses and expenses should be indicated with a minus sign.) 2016 2017 2018 Estimated total gross profit (loss) Actual total gross profit (loss) Percentages of completion Choose numerator ÷ Choose denominator % complete to date 2016 2017 2018 100.00%

Explanation / Answer

answer 1.

revenue to be reported on the basis of % completion method:

2016 :% completed = 80/150 = 53.33% so, revenue 250*.5333 = $133.33 million

2017: % completion = 40/150 = 26.67% so, revenue 250*.2667 = $66.675 million

2018: % completion = 30/150 = 20% so, reveue 250*.20 = $50 million

profit to be booked:

total profit in the project = 250-150 = $100 million

2016: 133.33-80 = $53.33 million profit.

2017: 66.67- 40 = $26.67 million profit.

2018: 50-30 = $20 million

2. for completed contract method

revenue will be booked when construction is completed:

so, no revenue and profit will be booked in the year 2016 and 2017

revenue for 2018 is $250 million and profit is $100 million.

3.

if the estimated cost of completion in 2017 is $120

then the % of completion in 2017 will be 50%

so, revenue to be booked in 2017 would be $125 million (50%)

hence the gross profit wil be 125-120 = $5 million

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