Question
Exercise 6-20 (Static) Long-term contract; revenue recognition over time vs. upon project completion [LO6-9] On June 15, 2024, Sanderson Construction entered into a long-term construction
Exercise 6-20 (Static) Long-term contract; revenue recognition over time vs. upon project completion [LO6-9]
On June 15, 2024, Sanderson Construction entered into a long-term construction contract to build a baseball stadium in Washington, D.C., for $220 million. The expected completion date is April 1, 2026, just in time for the 2026 baseball season. Costs incurred and estimated costs to complete at year-end for the life of the contract are as follows ($ in millions):
| 2024 | 2025 | 2026 | |
|---|---|---|---|
| Costs incurred during the year | $ 40 | $ 80 | $ 50 |
| Estimated costs to complete as of December 31 | 120 | 60 |
Required:
- Compute the revenue and gross profit that Sanderson will report in its 2024, 2025, and 2026 income statements related to this contract, assuming Sanderson recognizes revenue over time according to percentage of completion.
- Compute the revenue and gross profit that Sanderson will report in its 2024, 2025, and 2026 income statements related to this contract, assuming this project does not qualify for revenue recognition over time.
- Suppose the estimated costs to complete at the end of 2025 are $80 million instead of $60 million. Compute the amount of revenue and gross profit or loss to be recognized in 2025, assuming Sanderson recognizes revenue over time according to percentage of completion.
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Cost Management A Strategic Emphasis
Authors: Edward Blocher, Kung Chen, Thomas Lin
1st Edition
0070059160, 978-0070059160
