Question

On June 15, 2021, Sanderson Construction entered into a long-term construction contract to build a baseball stadium in Washington, D.C., for $320 million. The expected completion date is April 1, 2023, just in time for the 2023 baseball season. Costs incurred and estimated costs to complete at year-end for the life of the contract are as follows ($ in millions):

	2021			2022			2023
Costs incurred during the year	$	80		$	40		$	90
Estimated costs to complete as of December 31		120			80			—

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 $120 million instead of $80 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

Please hit LIKE button if this helped. For any further explanation, please put your query in comment, will get back to you. Requirement 1 2023 320,000,000 210,000,000 Contract price Actual costs to date Estimated costs to complete Total estimated costs Gross profit $ $ $ $ $ 2021 320,000,000 $ 80,000,000 $ 120,000,000 $ 200,000,000 $ 120,000,000 $ 2022 320,000,000 $ 120,000,000 $ 80,000,000 200,000,000 $ 120,000,000 $ 210,000,000 110,000,000 Percentage Completion: Actual Cost to Date Total Estimated Cost % Completion to date Year 2021 Year 2022 Year 2023 $ $ $ 80,000,000 $ 120,000,000 $ 210,000,000 $ 200,000,000 200,000,000 210,000,000 40.00% 60.00% 100.00% Year 2021 $320 million*40% Construction revenue Construction expense Gross profit (loss) To date $ $ $ Recognized in prior years 128,000,000 $ 80,000,000 $ 48,000,000 $ Recognized in 2021 $ 128,000,000 $ 80,000,000 $ 48,000,000 Year 2022 $320 million *60% Construction revenue Construction expense Gross profit (loss) To date $ $ $ Recognized in prior years Recognized in 2022 192,000,000 $ 128,000,000 $ 64,000,000 120,000,000 $ 80,000,000 $ 40,000,000 72,000,000 $ 48,000,000 $ 24,000,000 Year 2023 To date $320 million 100% Construction revenue Construction expense Gross profit (loss) $ $ $ Recognized in prior years Recognized in 2023 320,000,000 $ 192,000,000 $ 128,000,000 210,000,000 $ 120,000,000 $ 90,000,000 110,000,000 $ 72,000,000 $ 38,000,000 Requirement 2 Construction revenue Construction expense Gross profit (loss) Year 2021 $ $ $ Year 2022 $ $ Year 2023 $ $ $ 320,000,000 210,000,000 110,000,000 $ -

Requirement 3 2,023 320,000,000 210,000,000 Contract price Actual costs to date Estimated costs to complete Total estimated costs Gross profit (estimated in 2018) $ $ $ $ $ 2,021 320,000,000 $ 80,000,000 $ 120,000,000 $ 200,000,000 $ 120,000,000 $ 2,022 320,000,000 $ 120,000,000 $ 120,000,000 240,000,000 $ 80,000,000 $ 210,000,000 110,000,000 Percentage Completion: Actual Cost to Date Total Estimated Cost % Completion to date Year 2018 Year 2019 Year 2020 $ $ 80,000,000 S 120,000,000 $ 210,000,000 $ 200,000,000 240,000,000 210,000,000 40.00% 50.00% 100.00% $ Year 2018 To date $ $320 million*40% Construction revenue Construction expense Gross profit (loss) Recognized in prior years 128,000,000 $ 80,000,000 $ 48,000,000 $ Recognized in 2018 $ 128,000,000 $ 80,000,000 $ 48,000,000 $ $ Year 2019 $320 million*50% Construction revenue Construction expense Gross profit (loss) To date $ $ $ Recognized in prior years Recognized in 2022 160,000,000 $ 128,000,000 $ 32,000,000 120,000,000 $ 80,000,000 $ 40,000,000 40,000,000 $ 48,000,000 $ (8,000,000) Year 2020 $320 million *100% Construction revenue Construction expense Gross profit (loss) To date $ $ $ Recognized in prior years Recognized in 2022 320,000,000 $ 160,000,000 $ 160,000,000 210,000,000 $ 120,000,000 $ 90,000,000 110,000,000 $ 40,000,000 $ 70,000,000