Supplier Corp. enters into a government contract during the year to provide computer equipment for $$4,400,000.$ The contract consists of a single performance obligation to provide specified equipment in three years. Total costs estimated by Supplier Corp. for the contract are $$3,080,000.$ 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 $$1,408,000$ including unexpected cost overruns of $$176,000$ due to labor inefficiencies.

a$.$ Would revenue be recognized over time or at a point in time for this contract?

Answer

Recognize revenue over time

b$.$ Calculate $(1)$ recognized revenue, $(2)$ the gross profit, and $(3)$ adjusted contract margin to be recorded during the year.

$1.$ Recognized revenue Answer

$2.$ Gross profit Answer

$3.$ Adjusted contract margin Answer