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:

COST INCURRED DURING CURRENT YEAR ESTIMATED ADDITIONAL COST TO COMPLETE
2016 $3,000,000 $6,000,000
2017 $5,000,000 $2,000,000
2018 $2,500,000 $0

Required:
How much Revenue should Robertson recognize in 2017?

Answer 1

$5,600,000

Step-by-step explanation:

The calculation of the Revenue that should Robertson recognize in 2017 is calculated below:-

For 2016

Estimated total cost = Cumulative cost incurred + Est. additional cost to complete

= $3,000,000 + $6,000,000

= $9,000,000

Percentage of completion = Cumulative cost incurred / Estimated total cost

= $3,000,000 / $9,000,000

= 33.33%

Contract price = $12,000,000 * 33.33%

= $4,000,000

So, revenue for 2016 = $4,000,000

Now for 2017

Estimated total cost = Cumulative cost incurred + Est. additional cost to complete

= ($3,000,000 + $5,000,000) + $2,000,000

= $10,000,000

Percentage of completion = Cumulative cost incurred / Estimated total cost

= $8,000,000 / $10,000,000

= 80%

Contract price = $12,000,000 * 80%

= $9,600,000

Revenue = $9,600,000 - $4,000,000

= $5,600,000