Question

a 200 points 2/6/2020 Assignment Print View 8. Award: 2.00 points Exercise 5-18 Long-term contract revenue recognition over time vs. upon project completion (LOS-91 On June 15, 2018 Sanderson Construction entered into a long-term construction contract to build a baseball stadium in Washington, DC, for 1430 million. The expected completion date is April 1, 2020. just in time for the 2020 baseball season costs incurred and estimated costs to complete a year-end for the the contract are as follows (s in millions): 2018 2019 2020 3 40 $170 Costs incurred during the year 560 Estimated costs to complete as of December 31 210 140 Required: 1. Compute the revenue and gross profit will Sanderson report in its 2018, 2019, and 2020 income statements related to this contract assuming Sanderson recognizes revenue over time according to percentage of completion 2. Compute the revenue and gross profit will Sanderson report in its 2018, 2019, and 2020 income statements related to this contract assuring this project does not qualify for revenue recognition over time. 3. Suppose the estimated costs to complete at the end of 2019 are 5210 million instead of $140 million. Compute the amount of revenue and gross profit or loss to be recognized in 2019 using the percentage of completion method.

Answer 1

ques 1 2018 2016 180 2017 80 Estmated total gross profit/(loss) Actual total gross profit/(loss) 160 percentages of completion Actual costs to / 2016 40 / 2017 2107 2018 17 Estimated total 250 350 = = % completion 16% 60% 100% 2016 To date Recognised in prior years 68.8 construction revenue contruction expense Gross Profit/(loss) Recognised in 2018 68.80 430*0.16 (40.00) 28.80 -40 28.8 2017 To date Recognised in Recognised in prior years 2019 68.80 189.20 (350*68%) -210 (40.00) (170.00) 48 2 8.80 19.20 construction revenue contruction expense Gross Profit/(loss) 258 2018 To date construction revenue contruction expense Gross Profit/(loss) Recognised in Recognised in prior years 2020 430 258 172.00 -270 -210 (60.00) 1600 481 112.00 2018 430 270 ($ in millions) Contract price Actual costs to date Estimated costs to complete Total estimated costs Estimated gross profit (loss) (actual in 2018) 2016 430 40 210 250 180 2017 4301 210 140 350 80 270 160

Ques 2 Revenue recognised 2018 2019 2020 0 million 0 million 430 million Gross profit/ (loss ) 0 million 0 million 160 million Ques 3 2017 10 Estmated total gross profit/(loss) Actual total gross profit/(loss) percentages of completion Actual costs to / 2018 4017 2017 2107 Estimated total = 250 = 420/= % completion 16% 50% 2017 To date construction revenue contruction expense Gross Profit/(loss) Recognised in prior years 68.8 - 40 0 28.8 Recognised in 2018 68.80 (350*68%) (40.00) 28.80 2017 To date construction revenue contruction expense Gross Profit/(loss) Recognised in Recognised in prior years 2019 215 68.80 146.20 (390*50%) -210 (40.00) (170.00) 5 28.80 (23.80) ($ in millions) Contract price Actual costs to date Estimated costs to complete Total estimated costs Estimated gross profit (loss) (actual in 2018) 2016 430 40 2101 2501 180 2017 430 210 210 4 20 1 0