Question

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28. In spring 2017 Parmac Engineering Company signed a $240 million Parkersburg, to construct a new city hall. Parmac expects to construct the building incur expenses of $180 million. The city of Parkersburg paid $60 million when the conta 240 million within the next six months, and the Tihai Șou million exactly one year from the the contract Parmac incurred $72 million in costs during 2017 and rest in 2018 to complete the contract on time. signed a $240 million contract with the city of construct the building within two years and million when the contract was signed, 60 million exactly one year from the signing of Using the cost-to-cost method how much revenue should Parmac recognize in 2017? A) $ 60 million B) $108 million C) $ 96 million D) $180 million E) None of the above

Answer 1

Answer The Correct (C) $96 million Explanations Calculation of Revenue should Parmac recognize in 2017 using Cost-to-cost method Expected Cost = $180,000,000 Cost incurred during 2017= $72,000,000 Percentage of Completion = Cost incurred / Total Expected Cost = $72,000,000 / $180,000,000 = 40% Revenue Recognized = Total Contract x Percentage of Completion = $240,000,000 x 40% = $96,000,000