Computing Revenue and Gross Profit on Long-term Construction Contract Supplier Corp. enters into a government contract during the year to provide computer equipment for $1,800,000. The contract consists of a single performance obligation to provide specified equipment in three years. Total costs estimated by Supplier Corp. for the contract are $1,260,000. The equipment is highly specialized and has no alternative uses. As negotiated in the contract, any costs incurred by Supplier Corp. plus a specified profit margin will be paid to Supplier Corp. in the event of a contract cancellation. Actual costs incurred during the first year of the contract were $576,000 including unexpected cost overruns of $72,000 due to labor inefficiencies. Assume that at the end of the second year of the contract, the estimate of total costs has increased to $1,350,000 million due to an increase in cost of materials. Actual costs incurred to date are $1,012,500, excluding year one inefficiencies. a. Calculate (1) recognized revenue, (2) the gross profit, and (3) adjusted contract margin to be recorded in the second year of the contract. S 1 Recognized revenue 2 Gross profit S 3 Adjusted contract margin S 630,000 ✓ 54,000 x 72.000 x b. Calculate (1) cumulative recognized revenue, (2) cumulative gross profit, and (3) cumulative adjusted contract margin at the end of the second year of the contract. 1 Cumulative recognized revenue S 2 Cumulative gross profit $ 3 Cumulative adjusted contract margin S 0x 0x ox
Computing Revenue and Gross Profit on Long-term Construction Contract Supplier Corp. enters into a government contract during the year to provide computer equipment for $1,800,000. The contract consists of a single performance obligation to provide specified equipment in three years. Total costs estimated by Supplier Corp. for the contract are $1,260,000. The equipment is highly specialized and has no alternative uses. As negotiated in the contract, any costs incurred by Supplier Corp. plus a specified profit margin will be paid to Supplier Corp. in the event of a contract cancellation. Actual costs incurred during the first year of the contract were $576,000 including unexpected cost overruns of $72,000 due to labor inefficiencies. Assume that at the end of the second year of the contract, the estimate of total costs has increased to $1,350,000 million due to an increase in cost of materials. Actual costs incurred to date are $1,012,500, excluding year one inefficiencies. a. Calculate (1) recognized revenue, (2) the gross profit, and (3) adjusted contract margin to be recorded in the second year of the contract. S 1 Recognized revenue 2 Gross profit S 3 Adjusted contract margin S 630,000 ✓ 54,000 x 72.000 x b. Calculate (1) cumulative recognized revenue, (2) cumulative gross profit, and (3) cumulative adjusted contract margin at the end of the second year of the contract. 1 Cumulative recognized revenue S 2 Cumulative gross profit $ 3 Cumulative adjusted contract margin S 0x 0x ox
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Transcribed Image Text:Computing Revenue and Gross Profit on Long-term Construction Contract
Supplier Corp. enters into a government contract during the year to provide computer equipment for $1,800,000. The contract consists of a single performance obligation to provide
specified equipment in three years. Total costs estimated by Supplier Corp. for the contract are $1,260,000. The equipment is highly specialized and has no alternative uses. As
negotiated in the contract, any costs incurred by Supplier Corp. plus a specified profit margin will be paid to Supplier Corp. in the event of a contract cancellation. Actual costs incurred
during the first year of the contract were $576,000 including unexpected cost overruns of $72,000 due to labor inefficiencies.
Assume that at the end of the second year of the contract, the estimate of total costs has increased to $1,350,000 million due to an increase in cost of materials. Actual costs incurred to
date are $1,012,500, excluding year one inefficiencies.
a. Calculate (1) recognized revenue, (2) the gross profit, and (3) adjusted contract margin to be recorded in the second year of the contract.
1 Recognized revenue $
2 Gross profit
$
3 Adjusted contract margin $
630,000 ✓
54,000 x
72,000 *
b. Calculate (1) cumulative recognized revenue, (2) cumulative gross profit, and (3) cumulative adjusted contract margin at the end of the second year of the contract.
1 Cumulative recognized revenue
$
2 Cumulative gross profit
$
3 Cumulative adjusted contract margin $
0 x
0 x
0x
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