Question

Heineken Co. began a construction project in 2019 at a total contract price of $150 million. The project is scheduled for completion by 2021. During 2019, Heineken incurred $36 million of costs and estimates an additional $84 million of costs to complete the project. In 2020, Heineken incurred costs of $58.5 million and estimated an additional $40.5 million in costs to complete the project. Heineken recognizes revenue on all contracts over time, as the project is being completed by using the cost-to-cost approach.

A) $36 million is recognized as revenue in 2019
B) $58.5 million is recognized as revenue in 2020
C) Total contract price is $100 million
D) The project will be completed in 2023

Answer 1

Using the cost-to-cost approach, Heineken recognizes revenue on the construction project as the project progresses and costs are incurred.

Step-by-step explanation:

The subject of this question is Business and the grade level is College.

Using the cost-to-cost approach, Heineken Co. recognizes revenue on the construction project as the project progresses and costs are incurred. In 2019, Heineken incurred $36 million in costs. By the end of 2019, the revenue recognized would be equal to the costs incurred, so $36 million would be recognized as revenue in 2019.

In 2020, Heineken incurred $58.5 million in costs. Since $36 million had already been recognized in 2019, the remaining costs in 2020 would be $58.5 million - $36 million = $22.5 million. Therefore, $22.5 million would be recognized as revenue in 2020.