Please show your work for the following question: Seasons Construction is constr
ID: 2551610 • Letter: P
Question
Please show your work for the following question:
Seasons Construction is constructing an office building under contract for Cannon Company and uses the percentage-of-completion method. The contract calls for progress billings and payments of $1,550,000 each quarter. The total contract price is $18,600,000 and Seasons estimates total costs of $17,750,000. Seasons estimates that the building will take 3 years to complete, and commences construction on January 2, 2018. At December 31, 2018, Seasons estimated that it was 30% complete with the construction, based on costs incurred.
At December 31, 2019, Seasons Construction estimates that it is 75% complete with the building; however, the estimate of total costs to be incurred has risen to $18,000,000 due to unanticipated price increases. What is the total amount of Construction Expenses that Seasons will recognize for the year ended December 31, 2019?
a) $13,500,000
b) $7,875,000
c) $7,987,500
d) $8,175,000
Explanation / Answer
Answer is D. $8175,000 Explanation: Total Estimated cost at the end of 2018: 17,750,000 Perrcentage completion 30% Total expense incnurred and recognized in 2018 5325000 Total estimated cost at the end of 2019 18,000,000 Percentage completion 75% Total expense incurred till end of 2019 13500000 Less: Already recognized in past year 2018 5,325,000 Expense to be recognized in year 2019 8,175,000