Question

On June 15, 2021, Sanderson Construction entered into a long-term construction contract to build a baseball stadium in Washington, D.C., for $370 million. The expected completion date is April 1, 2023, just in time for the 2023 baseball season. Costs incurred and estimated costs to complete at year-end for the life of the contract are as follows ($ in millions):

	2021			2022			2023
Costs incurred during the year	$	70		$	110		$	80
Estimated costs to complete as of December 31		180			60			—

Required:
1. Compute the revenue and gross profit will Sanderson report in its 2021, 2022, and 2023 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 2021, 2022, and 2023 income statements related to this contract assuming this project does not qualify for revenue recognition over time.
3. Suppose the estimated costs to complete at the end of 2022 are $180 million instead of $60 million. Compute the amount of revenue and gross profit or loss to be recognized in 2022 assuming Sanderson recognizes revenue over time according to percentage of completion.

Exercise 6-20 (Algo) Long-term contract; revenue recognition over time vs. upon project completion [LO6-91 On June 15, 2021. Sanderson Construction entered into a long-term construction contract to build a baseball stadium in Washington D.C., for $370 million. The expected completion date is April 1, 2023. just in time for the 2023 baseball season. Costs incurred and estimated costs to complete at year-end for the life of the contrad are as follows $ in millions 2021 2022 2020 CO TUE during the wees to complete ar of December 01 Required: 1. Compute the revenue and gross profit will Sanderson report in its 2021 2022 and 2023 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 2021 2022 and 2023 income statements related to this contract assuming this project does not qualify for revenue recognition over time. 3. Suppose the estimated costs to complete at the end of 2022 are $180 million instead of $60 million Compute the amount of revenue and gross profit or loss to be recognized in 2022 assuming Sanderson recognizes revenue over time according to percentage of completion

Answer 1

In percentage of completion method, the completion is computed using the actual cost and estimated total costs. On the basis of that revenue and gross profit is recognized.

Requirement 1

Percentage of completion
	Numerator	Denominator
	Actual costs to date	Estimated Total costs	% complete to date
2021	70	250	0.28
2022	180	240	0.75
2023	260	260	1

2021
	To Date	Recognized in prior years	Recognized in 2021
Construction revenue (370*.28)	103.6	0	103.6
Construction expense	70	0	70
Gross profit (loss)	33.6	0	33.6

2022
	To Date	Recognized in prior years	Recognized in 2022
Construction revenue(370*0.75)	277.5	103.6	173.9
Construction expense	180	70	110
Gross profit (loss)	97.5	33.6	63.9

2023
	To Date	Recognized in prior years	Recognized in 2023
Construction revenue	370	277.5	92.5
Construction expense	260	180	80
Gross profit (loss)	110	97.5	12.5

Requirement 2

If project does not qualify for recognition over time, the gross profit and revenue is to be recognized at the end of contract period.

Year	Revenue Recognized	Gross Profit(loss) recognized
2021	0	0
2022	0	0
2023	370	370-280 = 110

Requirement 3

Percentage of completion
	Numerator	Denominator
	Actual costs to date	Estimated Total costs	% complete to date
2022	180	180+180 = 360	0.5

2022
	To Date	Recognized in prior years	Recognized in 2022
Construction revenue(370*0.5)	185	103.6	81.4
Construction expense	180	70	110
Gross profit (loss)	5	33.6	-28.6

kindly upvote