accounting

Question 3: Revenue and expense recognition (40 marks) South Olympia Systems (SOS) has a long-term project to install a complex information system for a client. The project has a contract price of $40 million, and it was scheduled to be completed over four years from 2019 to 2022. SOS uses the percentage of completion method to account for long-term contracts using the cost-to-cost ratio. It is currently early 2022. The following table provides information relating to this project so far. (Dollar amounts in millions) 2019 2020 2021 2022 Costs incurred in the year $ 4 $ 20 $10 Not avail Additional costs to complete estimated at 28 24 6 Not avail year-end Billings on construction-in-progress to-date 5 20 31 Not avail Cash collected to-date 3 17 29 Not avail Cumulative cost 4 24 34 Total estimated cost 32 48 40 Required: a. Compute the amount of gross profit for each of 2019, 2020, and 2021. Show computations in good form for partial marks. b. Compute the amount of revenue that SOS should recognize in each of 2019, 2020, and 2021. Show computations in good form for partial marks. c. Prepare all the journal entries required in 2019. (Hint: four entries are required.) d. BONUS: Ignore your answers to a-c. Due to the cost overrun, SOS renegotiated a new contract price of $50 million in 2020 to avoid loss. Everything else remain the same. Compute the amount of revenue and gross profit for each of 2020 and 2021. Show computations in good form for partial marks