Help Save&Exit; Indiana Co. began a construction project in 2018 with a contract
ID: 2557300 • Letter: H
Question
Help Save&Exit; Indiana Co. began a construction project in 2018 with a contract price of $164 million to be received when the project is completed in 2020 During 2018, Indiana incurred $31 million revenue over time and for this project recognizes revenue over time according to the percentage of the project that has been completed of costs and estimates an additional $80 milion of costs to complete the project Indiana recognizes In 2019, Indiana incurred additional costs of $58 milion and estimated an additional $39 milin in costs to complete the project. Indiana (Do not round your percentage calculated) Multiple Choice Recognized $36.00 miion gross profit on the project in 2019 Recognized $10 23on gross prolt on the project in 2019 MacBook Air 5 8 9 commandExplanation / Answer
Indiania Co.will recognize $10.23 million gross profit on the project in the year 2019 as explained below.
Total consideration to be received for this contract = $164 million
Estimated timeline to complete the project = 3 years (2018, 2019 and 2020)
Therefore, total contract price to be bifurcated in the proportion of the expenses incurred in each of the years and revenue to be recognised in all the three years.
Year 2018
Expenses incurred = $31 million
Further estimated cost to incurr = $80 million
Therefore, total estimated cost = $31 million + $80 million = $111 million
Therefore, percentage of completion = $31 million/$111 million = 27.93%
Hence, revenue to be recognised in the year 2018 = $164 million * 27.93% = $45.80 million
2019
Expenses already incurred in the year 2018 = $31 million
Expenses incurred during the year 2019 = $58 million
Expenses estimated to be incurred in 2020 = $39 million
Therefore, total estimated cost = $128 million
Percentage of Completion = Expenses incurred until 2019/total estimated expenses
= $89 million/$128 million = 69.53%
Hence, revenue to be recognised until 2019 = $164 * 69.53% = $114.03 million
Since the company has already recognised revenue of $45.80 (as calculated above) in the year 2018, therefore revenue that has to be recognised for the year 2019 will be = $114.03 million - $45.80 million = $68.23 million
Now, to calculate gross profit of 2019, we have to deduct the expenses incurred in 2019 from the revenue of 2019
= $68.23 million - $58 million
= $10.23 million