Question

On January 1, Year 1, Big Co. enters into a contract with a customer to build a bridge on the customer’s land for $2,500,000. The construction of the bridge is expected to be completed at the end of Year 3. Big determines that the progress toward completion of the bridge is reasonably measurable using the input method based on costs incurred. At contract inception, Big estimates that the expected total cost of construction will be $1,700,000. Below are the (1) actual costs incurred during each year, (2) expected costs to complete the construction, and (3) amounts billed to the customer: Year 1 Year 2 Year 3 Costs incurred each year $ 700,000 $500,000 $800,000 Costs expected in the following years 1,300,000 675,000 0 Amounts billed to (and paid by) the customer each year 700,000 950,000 850,000 What amount of revenue on this contract is recognized by Big in its Year 1 income statement?

Answer 1

Answer:

Amount of revenue in Year 1 = $0

Explanation:

Amount of revenue in Year 1 = Amounts billed Year 1 - Costs incurred Year 1

Amount of revenue in Year 1 = $700,000 – $700,000  

Amount of revenue in Year 1 = $0