Question - On June 15, 2013, Sanderson Construction entered into a long-term construction contract to build a baseball stadium in Washington D.C. for $260 million. The expected completion date is April 1 of 2015, just in time for the 2015 baseball season. Costs incurred and estimated costs to complete at year-end for the life of the contract are as follows ($ in millions):
2013 2014 2015
Costs incurred during the year $ 60 $ 80 $ 65
Estimated costs to complete as of 12/31 140 60 -
Required:
1. Determine the amount of gross profit or loss to be recognized in each of the three years using the percentage-of-completion method.
2. How much revenue will Sanderson report in each of three years using the percentage-of-completion method?
3. Determine the amount of gross profit or loss to be recognized in each of the three 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 using the cost recovery method that is required by IFRS.
5. Suppose the estimated costs to complete at the end of 2014 are $110 million instead of $60 million. Determine the amount of gross profit or loss to be recognized in 2014 using the percentage-of-completion method.