In spring 2012, Lowell Engineering Company signed an $120 million contract with

Question

In spring 2012, Lowell Engineering Company signed an $120 million contract with the city of Chelmsford, to construct a new city hall. Lowell Inc. expects to construct the building within two years and incur expenses of $70 million. The city of Chelmsford paid $40 million when the contract was signed, $60 million within the next six months, and the final $20 million exactly one year from the signing of the contract. Lowell Inc. incurred $35 million in costs during 2012 and rest in 2013 to complete the contract on time. Using the percentage-of-completion method how much revenue should Lowell Inc. recognize in 2012?

Explanation / Answer

percentage-of-completion method:

Total Expenses= 70 million

Expenses during the Year 2012= 35 million

Percentage of complition = 35/70=50 %

so Revenue can be recognised= 120 million * 50 %= 60 million

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