Question
Trillium Trails Inc. (Trillium)has been asked to resurface trails across the city of Toronto under a fixed price contract to pave 100KMs of bike trails
Trillium Trails Inc. (Trillium)has been asked to resurface trails across the city of Toronto under a fixed price contract to pave 100KMs of bike trails for $25 million at a total estimated cost of $18 million on July 1, 2021. Trillium has a June 30 year-end date. In the first year 40KM of trail was paved incurring $9 million of costs. In the second year, 50KM of the trial was completed incurring and additional $8 million of costs. In the last year, the remaining 10KM of the trial was completed for $1 million. Throughout the contract, actual costs were immaterially different from original estimates. Given that Trillium reports under ASPE recommend how revenue should be recognized.
According to ASPE:
- P 3400.17, revenue recognized using the percentage of completion method would be determined on a rational and consistent basis such as on the basis of sales value, associated costs, the extent of progress, or number of acts.
Required:
- Assume Trillium uses cost as the basis for recognizing the completion of the contract. How much revenue, expenses, and gross profit would be recognized in each of the three years.
- Prepare the journal entries relating to the contract for each of the three years.
- If management had the objective of income maximization after the first year of the contract, can you recommend an alternative to recognizing revenue and state the impact of your recommendation on the June 30, 2022 balance sheet and income statement.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started