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On December 31, 20x0, Raccoon Construction entered into a major long-term construction project with the following terms: Total contract price $3,000,000 Total expected cost $2,400,000
On December 31, 20x0, Raccoon Construction entered into a major long-term construction project with the following terms:
Total contract price $3,000,000
Total expected cost $2,400,000
Construction takes place over three years. Production costs and cash flows are shown in the following table:
Year Costs Incurred Cash Received
20x1 $900,000 $1,000,000
20x2 800,000 1,000,000
20x3 700,000 1,000,000
Totals $2,400,000 $3,000,000
- Show the revenue and pretax income for each year under both the percentage-of-completion and completed contract methods.
- Assuming this contract is the only activity undertaken by the company, show the balance sheet accounts at December 31, 20x1 resulting from the contract under the (i) percentage-of-completion method, and (ii) completed contract method.
- Assume that total projected costs increase by $100,000 and the change in estimate is made at December 31, 20x2. Compute the revenue and pretax income for 20x2 under the revised assumption.
- Now assume that that total projected costs increase by $700,000 and the change in estimate is made at December 31, 20x2. Compute the pretax income for 20x2 under the revised assumption
Only do question number 4!
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