Question

In spring 2017, Parmac Engineering Company signed a $240 million contract with the city of Parkersburg, to construct a new city hall. Parmac expects to construct the building within two years and incur expenses of $180 million. The city of Parkersburg paid $60 million when the contract was signed, $120 million within the next six months, and the final $60 million exactly one year from the signing of the contract. Parmac incurred $72 million in costs during 2017 and rest in 2018 to complete the contract on time. Using the cost-to-cost method how much revenue should Parmac recognize in 2017? Select one: A. $60 million B. $108 million C. $93 million D. $180 million E. None of the above

Answer 1

Answer:

E. None of the above

Explanation:

cost-to-cost method: based on the expected and incurred cost during the period we will determinate the amount of revenue recognize for the period:

$\frac{incurred}{total \: expected \: cost}$

expected cost:                   180,000,000

incurred cost during 2017:  72,000,000

percentage of completion: 72,000,000/180,000,000 = 40%

revenue recognition: 40% of the contract:

240,000,000 x 40% = 96,000,000