E5-10 Long-term contract;
percentage of completion, completed contract and cost recovery methods
E5-10 On June 15, 2011, Sanderson
Construction entered into a long-term construction contract to build a baseball
stadium in Washington D.C. for $220 million. The expected completion date is
April 1 of 2013, just in time for the 2013 baseball season. Costs incurred and
estimated costs to complete at year-end for the life of the contract are as
follows ($ in millions):
2011 2012 2013 Costs incurred
during the year $40 $80 $50 Estimated costs to complete as of 12/31
Required:
1. Determine the amount of gross
profit or loss to be recognized in each of the three years using the
percentage-of-completion method.
2. How much revenue will
Sanderson report in its 2011 and 2012 income statements related to this
contract using the percentage-of-completion method?
3. Determine the amount of gross
profit or loss to be recognized in each of the three years using the completed
contract method.
4. Determine the amount of
revenue, cost, and gross profit or loss to be recognized in each of the three
years under IFRS, assuming that using the percentage-of-completion method is
not appropriate.
5. Suppose the estimated costs to
complete at the end of 2012 are $80 million instead of $60 million. Determine
the amount of gross profit or loss to be recognized in 2012 using the
percentage-of-completion method.
TUTORIAL PREVIEW
Requirement 1
($ in millions) 2011 2012 2013
Contract price $220 $220 $220
Actual costs
to date 40 120 170
File name: E5-10 Sanderson Construction.docx File type: docx
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