Question

Hansen Construction, Inc., has consistently used the input method based on costs incurred to recognize revenue over time. During Year 1, Hansen started work on a $3 million fixed-price construction contract. The accounting records disclosed the following data for the year ended December 31, Year 1: Costs incurred $ 930,000 Estimated costs to complete 2,170,000 Amounts billed 1,100,000 Collections 700,000 How much loss should Hansen have recognized in Year 1?

Answer 1

The answer is: $100,000

Step-by-step explanation:

If Hansen Construction spent $930,000 in year 1 of the contract and estimates it still needs $2,170,000 to complete the contract, their total cost for the contract is $3,100,000. Since the contract is fixed price at $3,000,000, then Hansen is going to lose $100,000 with it.

Hansen should recognize the whole $100,000 loss in year 1 as soon as it is able to estimate it.