Question

Exercise 6-20 (Algo) Long-term contract; revenue recognition over time vs. upon project completion [LO6-9] On June 15, 2021, Sanderson Construction entered into a long-term construction contract to build a baseball stadium in Washington, D.C., for $390 million. The expected completion date is April 1, 2023, just in time for the 2023 baseball season. Costs incurred and estimated costs to complete at year-end for the life of the contract are as follows ($ in millions): Costs incurred during the year Estimated costs to complete as of December 31 2021 $ 60 190 2022 2023 $130 $70 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 $190 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. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 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. (Enter your answers in millions. Loss amounts should be indicated with a minus sign. Use percentages as calculated and rounded in the table below to arrive at your final answer.)

Answer 1

ques 1 T 2018 2016 1401 2017 1401 Estmated total gross profit/(loss) Actual total gross profit/(loss) 130 percentages of completion Actual costs to / 2016 6 01/ 2017| 1901 2018 | 17 Estimated total = 250 = 250 = = % completion 24% 76% 100% 2016 To date construction revenue contruction expense Gross Profit/(loss) Recognised in prior years 93.60 -60.00 33.60 0 Recognised in 2018 93.60 390*0.24 (60.00) 33.60 2017 To date construction revenue contruction expense Gross Profit/(loss) Recognised in Recognised in prior years 2019 296.40 93. 60 2 02.80 (350*68%) -190.00 -60.000 -130.00 106.40 33.60 72.80 2018 construction revenue contruction expense Gross Profit/(loss) Recognised in Recognised in To date prior years 2020 390.00 296.40 93.60 (260.00) (190.00) (70.00) 130.00 106.40 23.60 2018 390.00 260.00 ($ in millions) Contract price Actual costs to date Estimated costs to complete Total estimated costs Estimated gross profit (loss) (actual in 2018) 2016 390.00 60.00 190.00 250.00 140.00 2017| 390.00 190.000 60.00 250.00 140.00 260.00 130.00

Ques 2 Revenue recognised 2018 2019 2020 0 million 0 million 390 million Gross profit / (loss) 0 million 0 million 130 million Ques 3 2017 Estmated total gross profit/(loss) Actual total gross profit/(loss) percentages of completion Actual costs to / 2018 6017 2017 1907 Estimated total = 250 = 380 = % completion 24% 50% 2017 To date construction revenue contruction expense Gross Profit/(loss) Recognised in Recognised in prior years 2018 93.60 93.60 (350*68%) -60.00 ol (60.00) 33.60 33.60 2017 construction revenue contruction expense Gross Profit/(loss) Recognised in Recognised in To date prior years 2019 195.00 93.60 101.40 (390*50%) (190.00) (60.00) (130.00) 5.00 33.60 (28.60) ($ in millions) Contract price Actual costs to date Estimated costs to complete Total estimated costs Estimated gross profit (loss) (actual in 2018) 2016 390.001 60.00 190.00 250.00 140.00 2017 390.00 190.00 190.00 380.00 10.00