On June 15, 2011 Sanderson Construction entered into a long-term construction contract to build a baseball stadium in Washington DC for $220 million. The expected completion date is April 1 of 2013, just in time for the baseball season. Costs incurred and estimated costs to complete at year-end for the life of the contract are as follows ($ in millions):
Costs incurred during the year 40 80 50.Estimated costs to complete as of 12/31 120 60
Required:
1. Determine the amount of gross profit or loss to be recognized in each of the 3 years using the percentage-of-completion method.
2. How much revenue will Sanderson report in its 2011 & 2012 income statements related to this contract using the percentage-of-completion method?
3. Determine the amount of gross profit or loss to be recognized in each of the 3 years using the completed contract method.
4. Determine the amount of revenue, cost, and gross profit or loss to be recognized in each of the three years under IFRS, assuming that using the percentage-of-completion method is not appropriate.
5. Suppose the estimated costs to complete at the end of 2012 are $80 million instead of $60 million. Determine the amount of gross profit or loss to be recognized in 2012 using the percentage-of completion method.