Question

In spring of this year, Parmac Engineering Company signed a $480 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 $360 million. The city of Parkersburg paid $120 million when the contract was signed, $240 million within the next six months, and the final $120 million exactly one year from the signing of the contract. Parmac incurred $144 million in costs during the year and the rest in the following year to complete the contract on time. Using the cost-to-cost method how much revenue should Parmac recognize in the current year

Answer 1

Answer:

$192,000 million

Explanation:

Calculation for how much revenue should Parmac recognize in the current year

First step is to find the percentage of completion using this formula

Percentage of completion=Cost incurred/Total expected cost

Let plug in the formula

Percentage of completion=$144 million/$360 million

Percentage of completion=0.4*100

Percentage of completion=40%

Last step is to find the revenue recognized using this formula

Revenue recognized=Total contract *Percentage of completion

Let plug in the formula

Revenue recognized=$480 million*40%

Revenue recognized=$192,000 million

Therefore the amount of revenue that Parmac should recognize in the current year will be $192,000 million