A construction company entered into a fixed-price contract to build an office building for $20 million. Construction costs incurred during the first year were$6 million and estimated costs to complete at the end of the year were $9 million. The company recognizes revenue over time according to percentage of completion. How much revenue and gross profit or loss will appear in the company’s income statement in the first year of the contract?
In this exercise, we will determine the revenue and gross profit to be reported by the construction company in its income statement in the first year of the contract.
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A construction company entered into a fixed-price contract to build an office building for $20 million. Construction costs incurred during the first year were$6 million and estimated costs to complete at the end of the year were $9 million. The building was completed during the second year. Construction costs incurred during the second year were$10 million. How much revenue, cost, and gross profit will the company recognize in the first and second year of the contract applying the cost recovery method that is required by IFRS?
As of December 31, 2016, Cady Construction has one construction job for which the construction in progress (CIP) account has a balance of $20,000 and the billings on construction contract account has a balance of$14,000. Cady has another construction job for which the construction in progress account has a balance of $3,000 and the billings on construction contract account has a balance of$5,000. Indicate the amount of contract asset and/or contract liability that Cady would show in its December 31, 2016, balance sheet.
Consider each of the following scenarios separately: Scenario 1: Crown Construction Company entered into a contract with Star Hotel for building a highly sophisticated, customized conference room to be completed for a fixed price of $400,000. Nonrefundable progress payments are made on a monthly basis for work completed during the month. Legal title to the conference room equipment is held by Crown until the end of the construction project, but if the contract is terminated before the conference room is finished, Star retains the partially completed job and must pay for any work completed to date. Scenario 2: Regent Company entered into a contract with Star Hotel for constructing and installing a standard designed gym for a fixed price of$400,000. Nonrefundable progress payments are made on a monthly basis for work completed during the month. Legal title to the gym passes to Star upon completion of the building process. If Star cancels the contract before the gym construction is completed, Regent removes all the installed equipment and Star must compensate Regent for any loss of profit on sale of the gym to another customer. Scenario 3: On January 1, the CostDriver Company, a consulting firm, entered into a three-month contract with Coco Seafood Restaurant to analyze its cost structure in order to find a way to reduce operating costs and increase profits. CostDriver promises to share findings with the restaurant every two weeks and to provide the restaurant with a final analytical report at the end of the contract. This service is customized to Coco, and CostDriver would need to start from scratch if it provided a similar service to another client. Coco promises to pay $5,000 per month. If Coco chooses to terminate the contract, it is entitled to receive a report detailing analyses to that stage. Scenario 4: Assume Trump International Tower (Phase II) is developing luxury residential real estate and begins to market individual apartments during their construction. The Tower entered into a contract with Edwards for the sale of a specific apartment. Edwards pays a deposit that is refundable only if the Tower fails to deliver the completed apartment in accordance with the contract. The remainder of the purchase price is paid on completion of the contract when Edwards obtains possession of the apartment. Required: For each of the scenarios, determine whether the seller should recognize revenue (a) over time or (b) when the product or service is completed. Explain your answer.
The budgeting process for a midwestern college resulted in expense forecasts for the coming year (in $millions) of$9, $10,$11, $12, and$13. Because the actual expenses are unknown, the following respective probabilities are assigned: .3, .2, .25, .05, and .2.
Show the probability distribution for the expense forecast.