On June 15, 2018, Sanderson Construction entered into a long-term construction c

Question

On June 15, 2018, Sanderson Construction entered into a long-term construction contraçt to build a baseball stadium in Washington, D.., for $310 million. The expected com pletion date is April 1, 2020, Just in time for the 2020 baseball season. Costs incurred and estimated costs to complete at year-end for the life of the contract are as follows ($ in millions): 2018 2019 2820 5 70 $60 $30 Costs incurred during the year Estimated costs to complete as of December 31 130 38 Required: 1. Compute the revenue and gross profit vill Sanderson report in its 2018. 2019, and 2020 income statements related to this oontact 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 $30 million. Compute the amount of revenue and gross profit or loss to be recognized in 2019 using the percentage of completion method.

Explanation / Answer

1.

3.

Percentage completion method 2018 2019 2020 Cost incurred in till previous year 0 70 130 ADD Cost incurred during the year 70 60 30 Total cost incurred till date 70 130 160 ADD Estimated cost to be incurred 130 30 0 Total estimated cost to be incurred 200 160 160 Percentage of completion (A) 35% 81.25% 100% (cost incurred till date /total estimated cost ) Total revenue (B) 310 310 310 Total revenue recognized (A *B) 109 252 310 Less Revenue recognized in previous year 0 109 252 revenue recognized in current year 109 143 58 2018 2019 2020 Revenue 109 143 58 Less Cost incurred 70 60 30 Gross profit 39 83 28

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