Question
In: Accounting
On June 15, 2018, Sanderson Construction entered into a long-term construction contract to build a baseball...
On June 15, 2018, Sanderson Construction entered into a
long-term construction contract to build a baseball stadium in
Washington, D.C., for $310 million. The expected completion date is
April 1, 2020, just in time for the 2020 baseball season. Costs
incurred and estimated costs to complete at year-end for the life
of the contract are as follows ($ in millions):
| 2018 | 2019 | 2020 | |||||||
| Costs incurred during the year | $ | 70 | $ | 60 | $ | 30 | |||
| Estimated costs to complete as of December 31 | 130 | 30 | — | ||||||
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 $120 million instead of $30 million. Compute the
amount of revenue and gross profit or loss to be recognized in 2019
using the percentage of completion method.
- 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.)
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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. (Enter your answers in millions. Loss amounts should be indicated with a minus sign.)
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Solutions
Expert Solution
| 1 | Percentages of completion: | |||||
| Actual costs to date | Estimated total costs | % complete to date | ||||
| 2018 | 70 | 200 | 35.00% | |||
| (70+130) | ||||||
| 2019 | 130 | 160 | 81.25% | |||
| (70+60) | (130+30) | |||||
| 2020 | 160 | 160 | 100.00% | |||
| (70+60+30) | ||||||
| To date | Recognized in prior years | Recognized in 2018 | ||||
| a | b | a-b | ||||
| Construction revenue | 108.5 | 0 | 108.5 | |||
| (310*35%) | ||||||
| Construction expense | 70 | 0 | 70 | |||
| Gross profit (loss) | 38.5 | 0 | 38.5 | |||
| (108.5-70) | ||||||
| To date | Recognized in prior years | Recognized in 2019 | ||||
| a | b | a-b | ||||
| Construction revenue | 251.875 | 108.5 | 143.375 | |||
| (310*81.25%) | ||||||
| Construction expense | 130 | 70 | 60 | |||
| Gross profit (loss) | 121.875 | 38.5 | 83.375 | |||
| (251.875-130) | ||||||
| To date | Recognized in prior years | Recognized in 2020 | ||||
| a | b | a-b | ||||
| Construction revenue | 310 | 251.875 | 58.125 | |||
| (310*100%) | ||||||
| Construction expense | 160 | 130 | 30 | |||
| Gross profit (loss) | 150 | 121.875 | 28.125 | |||
| (310-160) | ||||||
| 2 | If the project does not qualify for revenue recognition over time,recognize revenue on completion of contract | |||||
| For 2018 and 2019=0 | ||||||
| For 2020: | ||||||
| To date | Recognized in prior years | Recognized in 2020 | ||||
| a | b | a-b | ||||
| Construction revenue | 310 | 0 | 310 | |||
| Construction expense | 160 | 0 | 160 | |||
| Gross profit (loss) | 150 | 0 | 150 | |||
| (310-160) | ||||||
| 3 | Percentages of completion: | |||||
| Actual costs to date | Estimated total costs | % complete to date | ||||
| 2018 | 70 | 200 | 35.00% | |||
| (70+130) | ||||||
| 2019 | 130 | 250 | 52.00% | |||
| (70+60) | (130+120) |
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