Exercise 6-20 (Static) Long-term contract; revenue recognition over time vs. upon project completion
[LO6-9]
On June 15, 2024, Sanderson Construction entered into a long-term construction contract to build a baseball stadium in Washington,
D.C., for $220 million. The expected completion date is April 1, 2026, just in time for the 2026 baseball season. Costs incurred and
estimated costs to complete at year-end for the life of the contract are as follows ($ in millions):
Costs incurred during the year
2024
2025
2026
$ 40
$ 80
$ 50
Estimated costs to complete as of December 31
120
60
-
Required:
1. Compute the revenue and gross profit that Sanderson will report in its 2024, 2025, and 2026 income statements related to this
contract, assuming Sanderson recognizes revenue over time according to percentage of completion.
2. Compute the revenue and gross profit that Sanderson will report in its 2024, 2025, and 2026 income statements related to this
contract, assuming this project does not qualify for revenue recognition over time.
3. Suppose the estimated costs to complete at the end of 2025 are $80 million instead of $60 million. Compute the amount of
revenue and gross profit or loss to be recognized in 2025, assuming Sanderson recognizes revenue over time according to
percentage of completion.
Complete this question by entering your answers in the tabs below.
Required 1 Required 2 Required 3
Compute the revenue and gross profit that Sanderson will report in its 2024, 2025, and 2026 income statements related to this contract,
assuming Sanderson recognizes revenue over time according to percentage of completion.
Note: Enter your answer in millions (i.e., $4,000,000 should be entered as $4). Loss amounts should be indicated with a minus sign. Use
percentages as calculated and rounded in the table below to arrive at your final answer.
Percentages of completion
2024
+
=
0
2025
+
=
0
2026
+
=
0
2024
To date
Recognized in prior years
Recognized in 2024
Construction revenue
$
0
Construction expense
$
0
Gross profit (loss)
$
0
2025
To date
Recognized in prior years
Recognized in 2025
Construction revenue
$
0
Construction expense
$
0
Gross profit (loss)
$
0
2026
To date
Recognized in prior years
Recognized in 2026
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