4 On June 15, 2018, Sanderson Construction ent DC. for $360 million. The expecte

Question

4 On June 15, 2018, Sanderson Construction ent DC. for $360 million. The expected completion dote is April 1. 2020, just in time for the 2020 baseball season. Costs incu estimated costs to complete at year end for the life of the contract are as follows ($ in milions) tered into a long term construction contract to build a baseball stadium in Washingtoni, 002935 Costs incurred during the year $3 a $140 $40 178 Estinated costs to conplete as of December 31 Required: 1. Compute the revenue and gross profit will Sanderson report in its 2018, 2019, and 2020 income statements related to this contract 2. Compute the revenue and gross profit will Sanderson report in it assuming this project does not quelify for revenue recognition over time 3. Suppose the estimated costs to complete ot the end of 2019 are $170 milion instead of $80 million Compute the amount of revenue and gross proft or loss to be recognized in 2019 using the percentage of completion method Complete this question by entering your answers in the tabs below Requaired 1Required 2 Requred 3 Compute the revenue and gross profit will Sanderson report in its 2018, 2019, and 2020 income statements related to this to arrive at your final answer.) contract assuming Sanderson recognizes revenue over time according to percentage of milions. Loss amounts should be indicated with a minus sign, Use percentages as calculated and rounded in the table below completion. (Enter your answers in Percentages of completion Choose numerator Choose denominator % complete to date

Explanation / Answer

1) 2018 (All amounts are in million $)

Percentage of Completion = Cost Incurred till date/Total Estimated costs for the project

= $30/($30+$170) = 15%

Revenue to be recognized in 2018 = Contract Price*Percentage of Completion

= $360 million*15% = $54 million

Gross Profit = Revenue recognized - Cost incurred during the year

= $54 - $30 = $24 million

2019

Percentage of Completion = Cost Incurred till date/Total Estimated costs for the project

= ($30+$140)/($30+$140+$80) = $170/$250 = 68%

Increase in percentage of completion in 2019 = 68% - 15% = 53%

Revenue to be recognized for 2019 = $360*53% = $190.80 million

Cost incurred in 2019 = $140 million

Gross Profit for 2019 = $190.80 - $140 = $50.80 million

2020

Percentage of Completion = Cost Incurred till date/Total Estimated costs for the project

= ($30+$140+$40)/($30+$140+$40) = $210/$210 = 100%

Increase in percentage of completion in 2020 = 100% - 68% = 32%

Revenue to be recognized for 2020 = $360*32% = $115.20 million

Cost incurred in 2020 = $40 million

Gross Profit for 2020 = $115.20 - $40 = $75.20 million

2) If the project does not qualify for revenue recognition over time then the revenue will be recognized at the end of the contract (when the contract will be completed). Thus in this case the total gross profit recognized in the last year (i.e 2020) and no revenue or profit will be recognized in 2018 and 2019.

Revenue to be reognized in 2020 = $360 million

Gross Profit in 2020 = Revenue - Total Cost

= $360 - ($30+$140+$40) = $360 - $210 = $250 millions

3) Percentage of Completion in 2019 = Cost Incurred till date/Total Estimated costs for the project

= ($30+$140)/($30+$140+$170) = $210/$340 = 61.76%

Increase in percentage of completion in 2019 = 61.76% - 15% = 46.76%

Revenue to be recognized for 2019 = $360*46.76% = $168.34 million

Cost incurred in 2019 = $140 million

Gross Profit for 2019 = $168.34 - $140 = $28.34 million

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