Question

On June 15, 2016, Sanderson Construction entered into a long-term construction contract to build a baseball stadium in Washington, D.C., for $400 million. The expected completion date is April 1, 2018, just in time for the 2018 baseball season. Costs incurred and estimated costs to complete at year-end for the life of the contract are as follows ($ in millions):

	2016			2017			2018
Costs incurred during the year	$	90		$	60		$	80
Estimated costs to complete as of December 31		150			50			—

Required:
1.	Compute the revenue and gross profit will Sanderson report in its 2016, 2017, and 2018 income statements related to this contract assuming Sanderson recognizes revenue over time according to percentage of completion. (Enter your answers in million. Use percentages as calculated and rounded in the table below to arrive at your final answer. Losses and expenses should be indicated with a minus sign.)

      

      

      

2.	Compute the amount of revenue and gross profit or loss to be recognized in 2016, 2017, and 2018 using the completed contract method. (Enter your answers in millions.)

      

3.	Suppose the estimated costs to complete at the end of 2017 are $150 million instead of $50 million. Compute the amount of revenue and gross profit or loss to be recognized in 2017 using the percentage of completion method. (Do not round intermediate calculations. Enter your answer in millions. Round your answers to 1 decimal place.)

      

      

      

Answer 1

Solution 1:

Computation of % of completion, revenue recognition and Gross Profit - Sanderson Construction (In Millions)
Year	Actual cost incurred (A)	Total cost incurred till date (B)	Total estimated Cost ( C )	% of completion (D) (B/C)	Contract Price (E)	Total Revenue to be recognized (F) (E * D)	Revenue for current period (G)	Gross Profit (H) (G - A)
2016	$90	$90	$240	37.50%	$400	$150	$150	$60
2017	$60	$150	$200	75.00%	$400	$300	$150	$90
2018	$80	$230	$230	100.00%	$400	$400	$100	$20

Solution 2:

Computation of Gross Profit - Revenue on completion - Sanderson Construction Company
Year	Actual cost incurred (A)	Total cost incurred till date (B)	Total estimated Cost ( C )	Contract Price (D)	Gross Profit
2016	$90	$90	$240	$400	$0
2017	$60	$150	$200	$400	$0
2018	$80	$230	$230	$400	$170

Solution 3:

Computation of % of completion, revenue recognition and Gross Profit - Sanderson Construction (In Millions)
Year	Actual cost incurred (A)	Total cost incurred till date (B)	Total estimated Cost ( C )	% of completion (D) (B/C)	Contract Price (E)	Total Revenue to be recognized (F) (E * D)	Revenue for current period (G)	Gross Profit (H) (G - A)
2016	$90	$90	$240	37.50%	$400	$150	$150	$60
2017	$60	$150	$300	50.00%	$400	$200	$50	-$10
2018	$80	$230	$230	100.00%	$400	$400	$200	$120

Amount of revenue to be recognized in 2017 using the percentage of completion method = $50 million

Amount of Gross Profit to be recognized in 2017 using the percentage of completion method = -$10 million