Seasons Construction is constructing an office building under contract for Canno

Question

Seasons Construction is constructing an office building under contract for Cannon Company and uses the percentage-of-completion method. The contract calls for progress billings and payments of $1,550,000 each quarter. The total contract price is $18,600,000 and Seasons estimates total costs of $17,750,000. Seasons estimates that the building will take 3 years to complete, and commences construction on January 2, 2018. 18). Seasons Construction completes the remaining 25% of the building construction on December 31, 2020, as scheduled. At that time the total costs of construction are $18,750,000.

What is the total amount of Revenue from Long-Term Contracts and Construction Expenses that Seasons will recognize for the year ended December 31, 2020?

Revenue Expenses

a. $18,600,000 $18,750,000

b. $4,650,000 $ 4,687,500

c. $4,650,000 $ 5,250,000

d. $4,687,500 $ 4,687,500

the answer is C but I am not getting how the expense is being calculated. Please explain.

Explanation / Answer

total contract price is $ 18,600,000

season construction using percentage of completion method.

Amount of revenue & construction expense for the year ended december 31, 2020 will be

25% of $ 18,600,000 revenue = $ 4,650,000

25% of $ 18,750,000 total cost = $ 4,687,500

Hence , answer is c.

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