Question

Robertson Construction entered into a contract to construct a tunnel for a fixed price of $12,000,000. Robertson recognizes revenue over time according to percentage of completion. Here are some facts:

Estimated Additional
Cost incurred Cost to Complete
2016 $ 3,000,000 $6,000,000
2017 5,000,000 2,000,000
2018 2,500,000 0
How much revenue would Robertson recognize in 2016?

Answer 1

Robertson Construction would recognize $4,000,000 in revenue in 2016.

Step-by-step explanation:

Robertson Construction recognizes revenue over time according to percentage of completion. To determine the revenue recognized in 2016, we need to calculate the percentage of completion for 2016 and multiply it by the fixed price of $12,000,000.

Given the estimated additional cost incurred in 2016 is $3,000,000 and the total cost to complete in 2016 is $6,000,000, the percentage of completion for 2016 is ($3,000,000 / $9,000,000) * 100% = 33.33%.

Therefore, the revenue recognized in 2016 is 33.33% * $12,000,000 = $4,000,000.