Chapter 4 Solutions

Chapter 4 Solutions - 4-15 a)Percentage of completion

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Unformatted text preview: 4-15 a)Percentage of completion methodYearRevenueExpenseProfit2008(7,200 / 46,000) x 64,000,000$10,017,391$7,200,000$2,817,3912009(20,100/ 46,000) x 64,000,000$27,965,217$20,100,000$7,865,2172010(18,700/ 46,000) x 64,000,000$26,017,392$18,700,000$7,317,392$64,000,000$46,000,000$18,000,000b) Completed contract methodYearRevenueExpenseProfit200820092010$64,000,000$46,000,000$18,000,000$64,000,000$46,000,000$18,000,0004.21a) For the first contract, revenue, expenses and profit arerecognized when the project is complete, as per thecompanys policy. The following, therefore, would berecognized in 2008:Revenues $650,000Expenses (510,000) Profit $140,000For the second contract, percentage of completion is used resulting in the following recognition of revenue, expenses, and profits:Revenue($1,408,075/$4,085,060 x $5,620,000) = $1,937,152Expenses (1,408,075)Profit $ 529,077b)For short-term projects, it is just as informative to financial statement users for a company to use the completed contract method. This is largely because waiting for the contract to be completed does not take that long and the amounts involved are usually not sufficiently large to cause profit and loss spikes over the long-term. For longer-term projects, however, it is more useful to recognize revenues and expenses as the project progresses provided that the revenue recognition criteria have been met. The effect of...
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Chapter 4 Solutions - 4-15 a)Percentage of completion

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