A contractor enters into a revenue contract to construct customized equipment for a customer. The contract price is $250,000 plus a $125,000 bonus if the customized equipment is completed by a specified date. The contract is expected to take three years to complete. The contractor has extensive experience in building customized equipment. The award fee is paid only if the customized equipment is completed by the agreed upon date. Otherwise, the contractor receives no bonus. The contractor estimates that it is 85% likely that the contract will be completed successfully and in advance of the target date. Required Determine the transaction price for revenue recognition for the contractor.

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Contract Costing

Contract costing is about tracing particular costs related to a particular contract entered into with the customer. It is one of the forms of job order costing. It is useful in long-term contracts at the most. It is seen that substantial time is required for the completion of the contract which takes different accounting periods. Thus, it is very much helpful for recognizing the costs associated with it and accounting in their specific accounting periods.