Solution in good accounting form Abot Company, a privato contractor, wins a bid to construct a railway for the government. Theterms of the arrangement are as follows:-Construct a road-completing construction within a year-Maintain and operate the road for 4 years-Resurface the road when the original surface has deteriorated below specifiedcondition. The operator estimates that it will have to undertake the resurfacing at theend of year 3.The operator collects toll fees of $200,000 per year. The contract ends in Year 5. The operatorestimates that the resurfacing expenditure increases by $5,000 for each year that the road isused. The appropriate discount rate is 10%. At contract inception, Abot Company identifies asingle performance obligation for construction services. Abot Company makes the followingestimates:Contract CostStand Alone SellingPriceForecast cost + 25%N/AN/AYearConstruction ServiceOperation ServicesRoad Resurface2-53200,00015,00010,000At the start of Year 1, Abot Company obtains a 4-year, 10% P200,000 bank loan to helpfinance the arrangement. The principal and interest on the loan matures in lump sum.Compute for the net income for Year 3.

Net income is the excess amount of revenue that arises after deducting all the expenses of a…

ot Company, a private contractor, wins a bid to construct a railway ms of the arrangement are as follows: -Construct a road-completing construction within a year Maintain and operate the road for 4 years Resurface the road when the original surface has deter condition. The operator estimates that it will have to underta end of year 3.

ot Company, a private contractor, wins a bid to construct a railway ms of the arrangement are as follows: -Construct a road-completing construction within a year Maintain and operate the road for 4 years Resurface the road when the original surface has deter condition. The operator estimates that it will have to underta end of year 3.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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