On December 31, 2012, Lowell Inc. signs a contract with the state of Texas Depar
ID: 2731255 • Letter: O
Question
On December 31, 2012, Lowell Inc. signs a contract with the state of Texas Department of Transportation to manufacture a bridge over the Merrimack. Lowell Inc. anticipates the construction will take three years. The company's accountants provide the following contract details relating to the project:
$520 million
$300 million
$220 million
During the three-year construction period, Lowell Inc. costs as follows:
$ 30 million
$180 million
$ 90 million
Tri-State uses the percentage of completion method to recognize revenue. Which of the following represent the revenue recognized in 2013, 2014, and 2015?
$520 million
Estimated construction costs$300 million
Estimated total profit$220 million
Explanation / Answer
Total cost = $300 million
Total Price of contract = $520 million
Tri-State uses the percentage of completion method to recognize revenue, So revenue in 2013, 2014, 2015 is calculated below:
Revenue in 2013 = ($30 / $300) × $520
= $52 million
Revenue in 2014 = ($180 / $300) × $520
= $312 million
Revenue in 2015 = ($90 / $300) × $520
= $156 million
Hence, revenue in 2013 is $52 million, revenue in 2014 is 312 million, revenue in 2015 is $156 million.
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