Question
Supplier Corp. enters into a government contract during the year to provide computer equipment for $2,000,000. The contract consists of a single performance obligation to
Supplier Corp. enters into a government contract during the year to provide computer equipment for $2,000,000. The contract consists of a single performance obligation to provide specified equipment in three years. Total costs estimated by Supplier Corp. for the contract are $1,400,000 . The equipment is highly specialized and has no alternative uses. As negotiated in the contract, any costs incurred by Supplier Corp. plus a specified profit margin will be paid to Supplier Corp. in the event of a contract cancellation. Actual costs incurred during the year were $640,000 including unexpected cost overruns of $80,000 due to labor inefficiencies.
b. Calculate (1) recognized revenue, (2) the gross profit, and (3) adjusted contract margin to be recorded during the year.
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