Hello , i need to know how to calculate \"Revenue from Long-Term Contracts\" in
ID: 2606456 • Letter: H
Question
Hello , i need to know how to calculate "Revenue from Long-Term Contracts" in part c .
could you please demonstrate from where that 8,960,000 came?
Thank you
Ex. 18-126—Percentage-of-completion method.
Penner Builders contracted to build a high-rise for $28,000,000. Construction began in 2014 and is expected to be completed in 2017. Data for 2014 and 2015 are:
2014 2015
Costs incurred to date $3,600,000 $10,400,000
Estimated costs to complete 14,400,000 9,600,000
Penner uses the percentage-of-completion method.
Instructions
(a) How much gross profit should be reported for 2014? Show your computation.
(b) How much gross profit should be reported for 2015?
(c) Make the journal entry to record the revenue and gross profit for 2015.
Solution 18-126
(a) $3,600,000
————— × $10,000,000 = $2,000,000
$18,000,000
(b) $10,400,000
—————— × $8,000,000 = $4,160,000
$20,000,000
Less 2014 gross profit 2,000,000
Gross profit in 2015 $2,160,000
(c) Construction in Process................................................................. 2,160,000
Construction Expenses.................................................................. 6,800,000
Revenue from Long-Term Contracts................................. 8,960,000
Explanation / Answer
First of all let’s see the formula of Revenue from long-term contracts;
As we know that revenue = Cost (Expenses) + Gross profit
Thus Revenue from long-term contracts = Construction expenses + Gross profit
So Revenue from long-term contracts ($6800000 + $2160000) = $8960000
You have already calculated gross profit and construction expenses for 2015, so when we add construction expenses and gross profit of 2015 then we will find $8960000
Construction profit for 2015 is given in the part (b) = $2160000
Construction expenses for 2015 ($10400000 – $3600000) = $6800000
Hence Revenue from long-term contracts ($6800000 + $2160000) = $8960000
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