Question

JJ Construction Inc. entered into a contract with a customer to build a corporate office on January 1, 2020, for $9,000,000. JJ construction owns the construction in process during the construction process and the office could be sold to other clients as well. The office is expected to be completed in three years for a total cost of $5,700,000. Actual costs incurred through December 31, 2020, are $2,394,000. Determine the amount of revenue to record in 2020 assuming that the cost-to-cost method is used.

Answer 1

$3,780,000

Step-by-step explanation:

Calculation to Determine the amount of revenue to record in 2020 assuming that the cost-to-cost method is used.

First step is to calculate the % of work completed by December 31, 2020 using this formula

% of work completed by December 31, 2020 = Actual cost incurred / Total estimated costs

Let plug in the formula

% of work completed by December 31, 2020=$2,394,000 / $5,700,000

% of work completed by December 31, 2020= 42%

Now let calculate the Amount of revenue to record in 2020 using cost to cost method using this formula

Amount of revenue to record in 2020 = Total contract price * % completion

Let plug in the formula

Amount of revenue to record in 2020 = $9,000,000*42%

Amount of revenue to record in 2020 = $3,780,000

Therefore the amount of revenue to record in 2020 assuming that the cost-to-cost method is used is $3,780,000