Exercise 5-18 Long-term contract, revenue recognition over time vs. upon project completion [LO5-9] On June 15, 2018, Sanderson Construction entered into a long-term construction contract to build a baseball stadium in Washington, D.C., for $420 million. The expected completion date is April 1, 2020, just in time for the 2020 baseball season. Costs incurred and estimated costs to complete at year-end for the life of the contract are as follows ($ in millions): 2018 2019 2020 Costs incurred during the year Estimated costs to complete as of December 31 50 $150 $60 200 120 - 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 $200 million instead of $120 million. Compute the amount of revenue and gross profit or loss to be recognized in 2019 using the percentage of completion method Percentages of completion Choose numerator | | Choose denominator 1-1 % complete to date Actual costs to date Estimated total costs 2018 2019 2020 250- 20.00% 54.05% 100.00% 2001 $ 370 2018 To date Recognized in prior years Recognized in 2018 Construction revenue Construction expense Gross profit (loss) 2019 To date Recognized in prior years Recognized in 2019 Construction revenue Construction expense Gross profit (losS) 0 0 2020 To date Recognized in prior years Recognized in 2020 Construction revenue Construction expense Gross profit (loss) 0 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.) RevenueGross Profit (Loss) Year 2018 2019 2020 recognized recognized 0 million s 0million$ 420|million$ 0 million 0 million 0 million $ Suppose the estimated costs to complete at the end of 2019 are $200 million instead of $120 million. Compute the amount of revenue and gross profit or loss to be recognized in 2019 using the percentage of completion method. (Enter your answers in millions. Use percentages as calculated and rounded in the table below to arrive at your final answer) Percentages of completion Choose numerator Actual costs to date | | Choose denominator-| % complete to date Estimated total costs 2019 2501 $ 4001 = 62.50% 2019 Recognized in prior Years To date Recognized in 2019 Construction revenue Construction expense Gross profit (loss) 0
