4.) In 20x1, Gorgeous Too Co. enters into a fixed-price construction contract with a customer. At contract inception, Gorgeous Too Co. assesses its performance obligations in the contract and concludes that it has a single performance obligation that is satisfied over time. Gorgeous Too Co. determines that the measure of progress that best depicts its performance on the contract is input method based on costs incurred.

Information on the contract follows:

Cumulative contract costs incurred 20x1 -2,250,000 20x2 - 4,800,000

Cumulative profits recognized 20x1 - 750,000 20x2 - 1,200,000

Progress billings 20x1 - 2,400,000 20x2 - 3,600,000

Collections on progress billings 20x1 - 2,000,000 20x2 - 4,000,000

The contract is completed in 20x2.

What amount of revenue is recognized in 20x2?

 

5.) 20x1, ABC Co. was contracted to build a railroad. The contract price is equal to the construction costs incurred plus 20% thereof. However, if the project is completed within 4 years, ABC will receive an additional payment of 200,000. Information on the project is shown below:

Costs incurred to date 20x1 - 2,400,000 20x2 - 4,575,000 20x3 - 6,125,000

Estimated costs to complete 20x1 - 3,600,000 20x2 - 1,525,000 20x3 - 125,000

In 20x1 and 20x2, it was not highly probable that the project will be completed on time. However, in 20x3, ABC assessed that project will be completed earlier than originally expected and thus it is now highly probable that the incentive payment will be received.

How much profit is recognized on the contract in 20x3?

 

6.) ABC Co. started work on a construction contract in 20x1. The contract price is 10M. However, the contractual agreement stipulates that if the cumulative inflation reaches or exceeds 26%, the contact price shall be adjusted upwards by 10%. Additional information on the contract is shown below:

Costs incurred to date 20x1 - 2,400,000 20x2 - 4,500,000

Estimated costs to complete 20x1 - 3,600,000 20x2 - 1,500,000

Cumulative inflation rate 20x1 - 18% 20x2 - 27%

How much is the profit recognized in 20x2?