Question

On June 15, 2018, Sanderson Construction entered into a long-term construction contract to build a baseball stadium in Washington, D.C., for $390 million. The expected completion date is April 1, 2020. lust in time for the 2020 baseball season. Costs incurred and estimated costs to complete at year-end for the life of the contract are as follows ($ in millions): Costs incurred during the year Estimated costs to complete as of December 31 2018 2019 2020 $ 60 $130 $70 190 60 - 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 assuming this project does not qualify for revenue recognition over time. 3. Suppose the estimated costs to complete at the end of 2019 are $190 million instead of $60 million. Compute the amount of revenue and gross profit or loss to be recognized in 2019 using the percentage of completion method. 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 2018, 2019, and 2020 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.) Show less Percentages of completion

Answer 1

Requirement 1
	% complete             =		Actual Cost to date
			Estimated Total Cost
	Cost incurred during the year	+	Cost incurred in previous years		=	Actual Cost to date
2018	$                                                       60	+	$                                 -		=	$                   60
2019	$                                                     130	+	$                                 60		=	$                190
2020	$                                                       70	+	$                               190		=	$                260
	Actual Cost to date	+	Estimated remaining costs		=	Estimated Total Cost
2018	$                                                       60	+	$                                        190		=	$                250
2019	$                                                     190	+	$                                          60		=	$                250
2020	$                                                     260	+	$                                           -		=	$                260
Percentages of Completion
	Choose numerator	÷	Choose denominator		=	% complete to date
	Actual Cost to date		Estimated Total Cost
2018	$                                                       60	÷	$                                        250		=	24.00%
2019	$                                                     190	÷	$                                        250		=	76.00%
2020						100.00%
	Contract Price	×	% complete to date		=	Construction revenue
2018	$                                                     390	×	24.00%		=	$94
2019	$                                                     390	×	76.00%		=	$296
2020	$                                                     390	×	100.00%		=	$390
2018
			To date	Recognized in prior years	Recognized in 2018
Construction revenue			$                94	$                -	$                                        94
Construction expense			$                60	$                -	$                                        60
Gross Profit (loss)			$                34	$                -	$                                        34
2019
			To date	Recognized in prior years	Recognized in 2019
Construction revenue			$              296	$               94	$                                     202
Construction expense			$              190	$               60	$                                     130
Gross Profit (loss)			$              106	$               34	$                                        72
2020
			To date	Recognized in prior years	Recognized in 2020
Construction revenue			$              390	$             296	$                                        94
Construction expense			$              260	$             190	$                                        70
Gross Profit (loss)			$              130	$             106	$                                        24
Requirement 3
	Actual Cost to date	+	Estimated remaining costs		=	Estimated Total Cost
2018	$                                                       60	+	$                                        190		=	$                250
2019	$                                                     190	+	$                                        190		=	$                380
Percentage of completion
	Choose numerator	÷	Choose denominator		=	% complete to date
	Actual Cost to date		Estimated Total Cost
2018	$                                                       60	÷	$                                        250		=	24.00%
2019	$                                                     190	÷	$                                        380		=	50.00%
	Contract Price	×	% complete to date		=	Construction revenue
2018	$                                                     390	×	24.00%		=	$94
2019	$                                                     390	×	50.00%		=	$195
2018
			To date	Recognized in prior years	Recognized in 2018
Construction revenue			$                94		$                                        94
Construction expense			$                60		$                                        60
Gross Profit (loss)			$                34		$                                        34
2019
			To date	Recognized in prior years	Recognized in 2019
Construction revenue			$195	$94	$101
Construction expense			$190	$60	$130
Gross Profit (loss)			$5	$34	-$29

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