Question
Its December 31, 2018 and your company is in the process of constructing a sports stadium for the local professional sports team. The contract price
Its December 31, 2018 and your company is in the process of constructing a sports stadium for the local professional sports team. The contract price was $40,000,000 with a performance bonus of $400,000 if the stadium is completed on schedule. The bonus decreases by 20% per week beyond the agreed-upon completion date (i.e., the bonus is $320,000 if one week late, $240,000 if two weeks late), and is $0 if the completion date is more than two weeks late. Your company originally estimated it would cost $35,000,000 to complete the stadium, and that there is a 60% probability it will finish on time, a 20% probability it will be one week late, a 10% probability it will be two weeks late, and a 10% probability it will be more than two weeks late. Your company uses the percentage-of-completion method to recognize expenses and revenues, and the probability-weighted method to determine expected revenues. As of December 31, 2017 your company had incurred $24,850,000 in costs to date and recognized $3,782,880 in profits. In addition, the company had billed the sports team for $20,000,000. Thus at the start of the year, the inventory section of your companys balance sheet consisted of the following:
Question 8 What is the total expected revenue for this contract?
Question 9 How much revenue should your company recognize in 2018 related to this project?
Construction in Progress (December 31, 2017): Costs: $24,850,000 Recognized Profits: $3,782,880 Total: 28,632,880 Less Billings: $20,000,000 Costs and recognized profit In excess of billings: $8,632,880 During 2018 your company incurred $5,250,000 in costs and estimates it will cost another $4,900,000 to complete the project during 2019Step by Step Solution
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