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S4_PLE_RevRec_LTContracts_Solution

S4_PLE_RevRec_LTContracts_Solution - ACCTG 620 | FALL 2011...

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ACCTG 620 | Fall 2011 S4 PLE Page 1 ACCTG 620 | F ALL 2011 S4 PLE R EVENUE RECOGNITION FOR LONG - TERM CONTRACTS (S OLUTION ) Scenario: Otis Construction Company (OCC) has entered into a contract with total expected revenue of $10 million. OCC expects that total costs will be $8,750,000. Below are the costs, billings and cash collections for the three years of the contract. 2011 2012 2013 Total Costs this year $1,500,000 $6,000,000 $1,250,000 $ 8,750,000 Billings this year $1,200,000 $5,800,000 $3,000,000 $10,000,000 Cash collected this year $1,000,000 $4,500,000 $4,500,000 $10,000,000 Based on surveys of the stage of completion, it was determined the contract was 10% complete in 2011, 85% complete in 2012 and was 100% complete in 2013. OCC reports using US GAAP and IFRS and meets the criteria necessary to use the percentage-of completion method (revenue-cost approach). Required: Part 1: Complete the table below. 2011 2012 2013 Total Revenue to date $1,000,000 $8,500,000 $10,000,000 Expenses to date $ 875,000 $7,437,500 $ 8,750,000 Gross profit to date $ 125,000 $1,062,500 $ 1,250,000 Revenues this year $1,000,000 $7,500,000 $ 1,500,000 $10,000,000 Expenses this year $ 875,000 $6,562,500 $ 1,312,500 $ 8,750,000 Gross profit this year $ 125,000 $ 937,500 $ 187,500 $ 1,250,000
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