Help Save & E Exercise 5-18 Long-term contract, revenue recognition over time vs

Question

Help Save & E Exercise 5-18 Long-term contract, revenue recognition over time vs. upon project completion [LOS-9) On June 15, 2018, Sanderson Construction entered into a long-term construction contract to build a baseball stadium in Washington, D.. for $320 milion. The expected completion date is April t 2020, just in time for the 2020 baseball season. Costs incurred and estimated costs to complete at year-end for the life of the contract are as follow in milions) 2018 2019 2020 Coats ineurred during the year Estinated costa to corplete as of becenber 31 $120 $50 70 180 Required: 1. Compute the revenue and gross profit will Sanderson report in its 2018, 2019, and 2020 income statements related to this contract assuming Sanderson recognizes revenue over time according to percentage of completion 2. Compute the revenue and gross profit will Sanderson report in its 2018, 2019, and 2020 income statements related to this contract assuming this project does not qualify for revenue recognition over time 3. Suppose the estimated costs to complete at the end of 2019 are $120 million instead of $70 million. Compute the amount of revenue and gross profit or loss to be recognized in 2019 using the percentage of completion method Complete this question by entering your answers in the tabs below MacBook Ai 20 3 0

Explanation / Answer

Requirement 1

    ($ in millions)                                            2018              2019                2020

Contract price                                        $320              $320                $320

Actual costs to date                                    60                180                  230

Estimated costs to complete                    180                70                  - 0 -

Total estimated costs                               240                250                 230

Estimated gross profit (actual in 2020)   $ 80               $ 70                 $ 90

       Gross profit (loss) recognition:

       2018:           $60/240

= 25% x $80 = $20

  

       2019:         $180/250

= 72% x $70 = $50.4 - $20 = $30.4

2020:         $320-230 = $90 – ($20 + 30.4) = $39.6

Requirement 2

          2018: $320 x 25% = $80

2019: $320 x 72% = $230.4-80=150.4

2020: $320 – 230.4 = $89.6

Requirement 3

       2019:         $180 / (180+120)   

= 60% x $20* = $12 - 20 = $(8) loss

*$320 – ($60+120+120) = $20

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