Reference no: EM132504547

Construction Contracts

A company is constructing a bridge at a fixed price of $15 million over three years. The customer remains in control of the bridge throughout the contract. The expected costs and billings are provided below.

Year                 1                        2           3

expected cost 4000,000 4500,000 3500,000

billings 5000,000 5000,000 5000,000

Required

Assume the percentage of completion CAN be measured reliably.

Question a. If actual costs coincide with expectations:

Calculate the amount of revenue that the company should company recognize in each year.

Question b. If the actual cost for Year 2 is $6,500,000 while costs for Year 1 and 3 remain unchanged:

Provide all journal entries relating the contract for Year 1-3.