Sierra Logging Company hired Reid Construction Company to build a new bridge acr

Question

Sierra Logging Company hired Reid Construction Company to build a new bridge across the Brown Trout River. The bridge would extend a logging road into a new stand of timber. The contract called for a payment of $12 million on completion of the bridge. Work was begun in 20times0 and completed in 20times2. Total costs were as follows: 1. Suppose the accountant for Reid Construction Company judged that Sierra Logging might not he able to pay the $12 million. a. How much revenue would you recognize each year under current revenue-recognition standards? b. How much revenue would you recognize each year under the proposed revenue-recognition standards? 2. Suppose Sierra Logging is a subsidiary of a major wood products company. Therefore, receipt of payment on the contract is reasonably certain. How much revenue would you recognize each year under current revenue-recognition standards?

Explanation / Answer

2010 2011 2012 Cost Incurred $2.00 $5.00 $10.00 Furthur Cost $8.00 $5.00 Total Cost $10.00 $10.00 $10.00 Degree of Completion 20% 50% 100% Revenue $2.40 $6.00 $12.00 Rev. recognized earlier 0 $2.40 $6.00 Revenue for the year $2.40 $3.60 $6.00 Cost Incurred $2.00 $5.00 $10.00 Profit $0.40 -$1.40 -$4.00

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