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FINANCIAL ACCOUNTING
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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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 $2,400,000. 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 $1,680,000. 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 $768,000 including unexpected cost overruns of $96,000 due to labor inefficiencies. Assume that at the end of the second year of the contract, the estimate of total costs has increased to $1,800,000 million due to an increase in cost of materials. Actual costs incurred to date are $1,350,000, 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 $ 2,400,000 x 2 Gross profit $ 288,000 * 3 Adjusted contract margin $ 162,000 ✓ 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. Cumulative recognized revenue $ 2 Cumulative gross profit $ 3 Cumulative adjusted contract margin $ 960,000 * 288,000 * 192,000 *
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 $2,400,000. 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 $1,680,000. 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 $768,000 including unexpected cost overruns of $96,000 due to labor inefficiencies. Assume that at the end of the second year of the contract, the estimate of total costs has increased to $1,800,000 million due to an increase in cost of materials. Actual costs incurred to date are $1,350,000, 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 $ 2,400,000 x 2 Gross profit $ 288,000 * 3 Adjusted contract margin $ 162,000 ✓ 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. Cumulative recognized revenue $ 2 Cumulative gross profit $ 3 Cumulative adjusted contract margin $ 960,000 * 288,000 * 192,000 *
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