In spring 2017, Parmac Engineering Company signed a $240 million contract with t

Question

In spring 2017, Parmac Engineering Company signed a $240 million contract with the city of Parkersburg, to construct a new city hall. Parmac expects to construct the building within two years and incur expenses of $180 million. The city of Parkersburg paid $60 million when the contract was signed, $120 million within the next six months, and the final $60 million exactly one year from the signing of the contract. Parmac incurred $72 million in costs during 2017 and rest in 2018 to complete the contract on time. Using the cost-to-cost method how much revenue should Parmac recognize in 2017?

Explanation / Answer

Cost in 2017 = 72 million

total cost = 180 million

% of cost in 2017 = 72 / 180 = 40%

Revenue = % of cost * total revenue

= 40% * 240

= 96 million

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