Question

Measuring income from long-term contracts. On January 1, 2017 assume that Turner Construction Company agreed to construct an observatory for Dartmouth College for $120 million. Dartmouth college must pay $60 million upon signing and $30 million in 2018 and 2019. Expected construction costs are $10 million for 2017, $60 million for 2018, and $30 million for 2019

REQUIRED:

a.) Indicate the amount and nature of income (revenue and expense) that Turner would recognize during 2017, 2018, and 2019 if it uses the completed-contract method. Ignore income taxes.

b.) Repeat requirement a using the percentage-of-completion method

c.) Indicate the balance in the Construction in Process account on December 31, 2017, 2018, and 2019, (just prior to completion of the contract) under the completed-contract and the percentage-of-completion methods.

Answer 1

contract method - 2019 a.) Completed - • Revenue & 2018 2017 120 100 • Expenses Profit 20 b.) Percentage of completion method. 2011 2018 2019 100 = 109. 6060). 30 - 304 7. of completion = cost incurred Total costs 100 100 • Revenue Expenses Profit HEF 12 (10) 72 (60) T2 (60) Į (30) 6 12

completed contract - Construction C) in Process Completed co account - Particulars. 31/12/2012 31/12/2018 31/12/2014 opening balance 00 1070 Cost incurred 10 60 A Charged to profit flass Closlug balancu 7 Construction in Particlan. Process account - % of completion 3112/2017 31/12/2018 3.1]|22019, 10 (10) opening balance I cost incurred & Charged to PAL closing bahnce