Question

7 On June 15, 2018, Sanderson Construction entered into a long-term construction contract to build a baseball stadium in Washington, D.C., for $220 million. The expected completion date is April 1, 2020, just in time for the 2020 baseball season. Costs incurred and estimated costs to complete at year-end for the life of the contract are as follows ($ in millions): 0.5 points 2018 2019 2020 Costs incurred during the year Estimated costs to complete as of December 31 120 $80 120 60- 40 $80 $50 eBookRequired 1. Compute the revenue and gross profit will Sanderson report in its 2018, 2019, and 2020 income statements related to this contract assuming Sanderson recognizes revenue over time according to percentage of completion. 2. Compute the revenue and gross profit will Sanderson report in its 2018, 2019, and 2020 income statements related to this contract assuming this project does not qualify for revenue recognition over time. 3. Suppose the estimated costs to complete at the end of 2019 are $80 million instead of $60 million. Compute the amount of revenue and gross profit or loss to be recognized in 2019 using the percentage of completion method. Hint Print Complete this question by entering your answers in the tabs below. References Required 1 Required 2 Required 3

Answer 1

1. Percentage of completion

	Numerator	$\div$	Denominator	=	% complete to date
	Actual costs to date	$\div$	Estimated total costs	=
2018	$40	$\div$	$160	=	25.00%
2019	120	$\div$	180	=	66.67%
2020	170	$\div$	170	=	100.00%

2018

	To date	Recognized in prior years	Recognized in 2018
Construction revenue	$55	0	$55
Construction expense	40	0	40
Gross profit (loss)	$15	0	$15

2019

	To date	Recognized in prior years	Recognized in 2018
Construction revenue	$146.67	$55	$91.67
Construction expense	120	40	80
Gross profit (loss)	$26.67	$15	$11.67

2020

	To date	Recognized in prior years	Recognized in 2018
Construction revenue	$220	$146.67	$73.33
Construction expense	170	120	50
Gross profit (loss)	$50	$26.67	$23.33

2.

Year	Revenue Recognition	Gross Profit (loss) recognized
2018	0	0
2019	0	0
2020	$220	$50

3.

Percentages of completion
	Numerator	$\div$	Denominator	=	% complete to date
	Actual costs to date		Estimated total costs
2019	$120	$\div$	$200	=	60%
2019
	To date	Recognized in prior years		Recognized in 2019
Construction revenue	$132	$55		$77
Construction expense	120	40		80
Gross profit (loss)	$12	$15		($3)