Answer:
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. | |||||
Percentages of completion | |||||
Choose numerator | ÷ | Choose denominator | = | % complete to date | |
Actual Cost to Date | Estimated total costs | ||||
2018 | 30 | ÷ | 200 | = | 15% |
2019 | 170 | ÷ | 250 | = | 68% |
2020 | 210 | 210 | 100.00% |
2018($ in millions) | |||||
To date | Recognized in prior years | Recognized in 2018 | |||
Construction revenue($360*15%) | $54 | $0 | $54 | ||
Construction expense | $30 | $0 | $30 | ||
Gross profit (loss) | $24 | $0 | $24 |
2019($ in millions) | |||||
To date | Recognized in prior years | Recognized in 2019 | |||
Construction revenue($360*68%) | $244.8 | $54 | $190.8 | ||
Construction expense | $170 | $30 | $140 | ||
Gross profit (loss) | $74.8 | $24 | $50.8 |
2020($ in millions) | |||||
To date | Recognized in prior years | Recognized in 2020 | |||
Construction revenue($360*100%) | $360 | $190.8 | $169.2 | ||
Construction expense | $210 | $140 | $70 | ||
Gross profit (loss) | $150 | $50.8 | $99.2 |
2. Compute the revenue and gross profit will Sanderson report in its 2018, 2019, and 2020 income statements related to this contract assuming this project does not qualify for revenue recognition over time. | ||||
Year | Revenue recognized | Gross Profit (Loss) recognized | ||
2018 | - | million | - | million |
2019 | - | million | - | million |
2020 | $360 | million | $150 | million |
3. Suppose the estimated costs to complete at the end of 2019 are $170 million instead of $80 million. Compute the amount of revenue and gross profit or loss to be recognized in 2019 using the percentage of completion method. | |||||
Percentages of completion | |||||
Choose numerator | ÷ | Choose denominator | = | % complete to date | |
Actual Cost to Date | Estimated total costs | ||||
2018 | 30 | ÷ | 200 | = | 15% |
2019 | 170 | ÷ | 340 | = | 50% |
2020 | 210 | 210 | 100.00% |
2019($ in millions) | |||||
To date | Recognized in prior Years | Recognized in 2019 | |||
Construction revenue($360*50%) | $180 | $54 | $126 | ||
Construction expense | $170 | $30 | $140 | ||
Gross profit (loss) | $10 | $24 | ($14) |
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