Question

On December 31, 2017, State Construction Inc. signs a contract with the state of West Virginia Department of Transportation to manufacture a bridge over the New River. State Construction anticipates the construction will take three years.
The company’s accountants provide the following contract details relating to the project:

Contract price $780 million
Estimated construction costs $600 million
Estimated total profit $180 million

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

2018 $ 60 million
2019 $360 million
2020 $180 million

State Construction uses the cost-to-cost method to recognize revenue.

Which of the following represent the revenue recognized in 2018, 2019, and 2020?

A) $225 million, $300 million, $2550 million

B) $60 million, $240 million, $120 million

C) $33 million, $198 million, $99 million

D) $78 million, $468 million, $234 million

E) None of the above

Answer 1

Answer:

D) $78 million, $468 million, $234 million

Explanation:

Using the cost method we have following revenue in each year :

                                  Year-1 Year-2 Year-3

Contract Price           780  780 780

Cost to date                   -60   -420 -600

Futher Cost                -540 -180   0

Total Profit                      180          180         180

   

Percetage of completion on cost to cost    

Cost incured to Date / Total Cost    

                                        Yr-1              Yr-2                 yr-3

                             60/600 420/600  600/600

% Completed                10%             70%            100%

   

For the Year Ended Revenue    

% completed*total contracr price    

   

Revenue                                        78      546        780

Revenue already recorded         0       78         546

Revenue for the year                78      468         234