Seasons Construction is constructing an office building under contract for Cannon Company and uses the percentage-of-completion method. The contract calls for progress billings and payments of $1,550,000 each quarter. The total contract price is $18,600,000 and Seasons estimates total costs of $17,750,000. Seasons estimates that the building will take 3 years to complete and commences construction on January 2, 2024. At December 31, 2024, Seasons estimates that it is 30% complete with the construction, based on costs incurred. By December 31, 2025, Seasons estimates that it is 75% complete with the building; however, the estimate of total costs to be incurred has risen to $18,000,000 due to unanticipated price increases. What is the total amount of Construction Expenses that Seasons will recognize for the year ended December 31, 2025? O $13,500,000 $7,875,000 $7,987,500 $8,175,000

Seasons Construction is constructing an office building under contract for Cannon Company and uses the percentage-of-completion method. The contract calls for progress billings and payments of $1,550,000 each quarter. The total contract price is $18,600,000 and Seasons estimates total costs of $17,750,000. Seasons estimates that the building will take 3 years to complete and commences construction on January 2, 2024. At December 31, 2024, Seasons estimates that it is 30% complete with the construction, based on costs incurred. By December 31, 2025, Seasons estimates that it is 75% complete with the building; however, the estimate of total costs to be incurred has risen to $18,000,000 due to unanticipated price increases. What is the total amount of Construction Expenses that Seasons will recognize for the year ended December 31, 2025? O $13,500,000 $7,875,000 $7,987,500 $8,175,000

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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Concept explainers

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.

Question

100%

Seasons Construction is constructing an office building under contract for
Cannon Company and uses the percentage-of-completion method. The
contract calls for progress billings and payments of $1,550,000 each quarter.
The total contract price is $18,600,000 and Seasons estimates total costs of
$17,750,000. Seasons estimates that the building will take 3 years to
complete and commences construction on January 2, 2024. At December 31,
2024, Seasons estimates that it is 30% complete with the construction, based
on costs incurred.
By December 31, 2025, Seasons estimates that it is 75% complete with the
building; however, the estimate of total costs to be incurred has risen to
$18,000,000 due to unanticipated price increases. What is the total amount
of Construction Expenses that Seasons will recognize for the year ended
December 31, 2025?
$13,500,000
O $7,875,000
$7,987,500
O $8,175,000

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