Complete the following problem using the existing revenue recognition standards.
ID: 2424685 • Letter: C
Question
Complete the following problem using the existing revenue recognition standards. Discuss what changes may be necessary in accounting for this situation under the new revenue recognition standard (FASB ASC 606).
On June 15, 2016, Anderson Construction entered into a long-term construction contract to build a baseball stadium in Washington, D.C., for $220 million. The expected completion date is April 1, 2018, just in time for the 2018 baseball season. Costs incurred and estimated costs to complete at year-end for the life of the contract are as follows ($ in millions):
2016
2017
2018
Costs incurred during the year
$ 40
$80
$50
Estimated costs to complete as of December 31
120
60
—
Required:
How much revenue and gross profit will Anderson report in its 2016, 2017, and 2018 income statements related to this contract assuming Anderson recognizes revenue over time according to percentage of completion?
How much revenue and gross profit will Anderson report in its 2016, 2017, and 2018 income statements related to this contract assuming this project does not qualify for revenue recognition over time?
Suppose the estimated costs to complete at the end of 2017 are $80 million instead of $60 million. Determine the amount of revenue and gross profit or loss to be recognized in 2017 assuming Anderson recognizes revenue over time according to percentage of completion.
2016
2017
2018
Costs incurred during the year
$ 40
$80
$50
Estimated costs to complete as of December 31
120
60
—
Explanation / Answer
Percentage of Completion= (Cost Incurred/Total Estimated cost)*100
Contract Revenue= Contract Amount*Degree of Completion
2-
3-
2016 2017 2018 Cost Incurred $40.00 $120.00 $170.00 Furthur estimated Cost $120.00 $60.00 Total Cost $160.00 $180.00 $170.00 Degree of Completion 25% 67% 100%