2. Franklin Construction entered into a fixed-price contract to build a freeway-connecting ramp for $58 million. Constru...
2. Franklin Construction entered into a fixed-price contract to
build a freeway-connecting ramp for $58 million. Construction costs
incurred in the first year were $48 million and estimated remaining
costs to complete at the end of the year were $29 million.
a. How much gross profit or loss will Franklin recognize in the
first year if it recognizes revenue over time according to
percentage of completion method? (Enter your answer in
millions.)
b.
How much gross profit or loss will Franklin recognize in the first
year applying the completed contract method? (Enter your
answer in millions.)
Homework Answers
2. a. Total estimated cost = 48+29 = $77 million
Loss = Contract price - Total estimated cost
= 58 - 77 = $19 million
Net revenue recognized = (contract price x % of completion) - Loss
= (58*48/77) - 19 = $17.15 million
Gross loss recognize in the first year = Construction cost incurred - Net revenue recognized
= 48 - 17.15 = $30.85 million
b. Gross loss to be recognized in the first year under the completed contract method = Contract price - Estimated cost
= $58 - 77
= $19 million
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