On December 31, 2012, Mass Construction Inc. signs a contract with the state of

Question

On December 31, 2012, Mass Construction Inc. signs a contract with the state of Massachusetts Department of Transportation to manufacture a bridge over the Merrimack. Mass Construction anticipates the construction will take three years. The company's accountants provide the following contract details relating to the project:

Contract price $520 million

Estimated construction costs $300 million

Estimated total profit $220 million

During the three-year construction period, Tri-State incurred costs as follows:

2013 $ 30 million

2014 $180 million

2015 $ 90 million

Tri-State uses the percentage of completion method to recognize revenue. Which of the following represent the revenue recognized in 2013, 2014, and 2015?

Explanation / Answer

Percentage of completion=(cost to date/cost incurred till date+Estimated cost to complete)x100

Percentage of completion each year:

2013=(30/30+180+90)x100=10%

2014=(30+180/30+180+90)x100=70%

2015=(30+180+90/30+180+90)x100=100%

Current Period Revenue from contract=(contract price x % of completion)-revenue previously recognised

Revenue to be recognise yearly:

2013=(520x30%)-0=156

2014=(520x70%)-156=208

2015=(520x100%)-208=312

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