Exercise 6-20 (Algo) Long-term contract; revenue recognition over time vs. upon project completion [LO6-9] On June 15, 2024, Sanderson Construction entered into a long-term construction contract to build a baseball stadium in Washington, D.C., for $410 million. The expected completion date is April 1, 2026, just in time for the 2026 baseball season. Costs incurred and estimated costs to complete at year-end for the life of the contract are as follows ($ in millions): Costs incurred during the year 31 Estimated costs to complete as of December Required: 2024 $ 50 200 2025 $ 150 50 2026 $ 45 1. Compute the revenue and gross profit that Sanderson will report in its 2024, 2025, and 2026 income statements related to this contract, assuming Sanderson recognizes revenue over time according to percentage of completion. 2. Compute the revenue and gross profit that Sanderson will report in its 2024, 2025, and 2026 income statements related to this contract, assuming this project does not qualify for revenue recognition over time. 3. Suppose the estimated costs to complete at the end of 2025 are $200 million instead of $50 million. Compute the amount of revenue and gross profit or loss to be recognized in 2025, assuming Sanderson recognizes revenue over time according to percentage of completion.
Exercise 6-20 (Algo) Long-term contract; revenue recognition over time vs. upon project completion [LO6-9] On June 15, 2024, Sanderson Construction entered into a long-term construction contract to build a baseball stadium in Washington, D.C., for $410 million. The expected completion date is April 1, 2026, just in time for the 2026 baseball season. Costs incurred and estimated costs to complete at year-end for the life of the contract are as follows ($ in millions): Costs incurred during the year 31 Estimated costs to complete as of December Required: 2024 $ 50 200 2025 $ 150 50 2026 $ 45 1. Compute the revenue and gross profit that Sanderson will report in its 2024, 2025, and 2026 income statements related to this contract, assuming Sanderson recognizes revenue over time according to percentage of completion. 2. Compute the revenue and gross profit that Sanderson will report in its 2024, 2025, and 2026 income statements related to this contract, assuming this project does not qualify for revenue recognition over time. 3. Suppose the estimated costs to complete at the end of 2025 are $200 million instead of $50 million. Compute the amount of revenue and gross profit or loss to be recognized in 2025, assuming Sanderson recognizes revenue over time according to percentage of completion.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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![Exercise 6-20 (Algo) Long-term contract; revenue recognition over time vs. upon project completion
[LO6-9]
On June 15, 2024, Sanderson Construction entered into a long-term construction contract to build a baseball stadium in Washington,
D.C., for $410 million. The expected completion date is April 1, 2026, just in time for the 2026 baseball season. Costs incurred and
estimated costs to complete at year-end for the life of the contract are as follows ($ in millions):
Costs incurred during the year
Estimated costs to complete as of December
2024
$ 50
200
2025
$ 150
2026
$ 45
50
31
Required:
1. Compute the revenue and gross profit that Sanderson will report in its 2024, 2025, and 2026 income statements related to this
contract, assuming Sanderson recognizes revenue over time according to percentage of completion.
2. Compute the revenue and gross profit that Sanderson will report in its 2024, 2025, and 2026 income statements related to this
contract, assuming this project does not qualify for revenue recognition over time.
3. Suppose the estimated costs to complete at the end of 2025 are $200 million instead of $50 million. Compute the amount of
revenue and gross profit or loss to be recognized in 2025, assuming Sanderson recognizes revenue over time according to
percentage of completion.
Complete this question by entering your answers in the tabs below.
Required 1 Required 2 Required 3
Compute the revenue and gross profit that Sanderson will report in its 2024, 2025, and 2026 income statements related to
this contract, assuming this project does not qualify for revenue recognition over time.
Note: Enter your answer in millions (i.e., $4,000,000 should be entered as $4). Loss amounts should be indicated with a
minus sign. Leave no cells blank.
Revenue
Year
recognized
Gross Profit (Loss)
recognized
2024
million
million
2025
million
million
2026
million
million
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Transcribed Image Text:Exercise 6-20 (Algo) Long-term contract; revenue recognition over time vs. upon project completion
[LO6-9]
On June 15, 2024, Sanderson Construction entered into a long-term construction contract to build a baseball stadium in Washington,
D.C., for $410 million. The expected completion date is April 1, 2026, just in time for the 2026 baseball season. Costs incurred and
estimated costs to complete at year-end for the life of the contract are as follows ($ in millions):
Costs incurred during the year
Estimated costs to complete as of December
2024
$ 50
200
2025
$ 150
2026
$ 45
50
31
Required:
1. Compute the revenue and gross profit that Sanderson will report in its 2024, 2025, and 2026 income statements related to this
contract, assuming Sanderson recognizes revenue over time according to percentage of completion.
2. Compute the revenue and gross profit that Sanderson will report in its 2024, 2025, and 2026 income statements related to this
contract, assuming this project does not qualify for revenue recognition over time.
3. Suppose the estimated costs to complete at the end of 2025 are $200 million instead of $50 million. Compute the amount of
revenue and gross profit or loss to be recognized in 2025, assuming Sanderson recognizes revenue over time according to
percentage of completion.
Complete this question by entering your answers in the tabs below.
Required 1 Required 2 Required 3
Compute the revenue and gross profit that Sanderson will report in its 2024, 2025, and 2026 income statements related to
this contract, assuming this project does not qualify for revenue recognition over time.
Note: Enter your answer in millions (i.e., $4,000,000 should be entered as $4). Loss amounts should be indicated with a
minus sign. Leave no cells blank.
Revenue
Year
recognized
Gross Profit (Loss)
recognized
2024
million
million
2025
million
million
2026
million
million
Show less▲
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Step 1: Explain contract costing
VIEWStep 2: Determine revenue and gross profit under percentage of completion method
VIEWStep 3: Determine revenue and gross profit if contract does not qualify for revenue recognition over time
VIEWStep 4: Determine revenue if estimated cost is changed (requirement 3)
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