Reference no: EM131794754

Assignment

1) How much revenue, cost, and gross profit will the company recognize in the first and second year of the contract applying the cost recovery method that is required by IFRS? (Enter your answers in millions.)

A construction company entered into a fixed-price contract to build an office building for $36 million.

Construction costs incurred during the first year were $9 million and estimated costs to complete at the end of the year were $21 million.

The building was completed during the second year. Construction costs incurred during the second year were $22 million.

2) Charter Corporation, which began business in 2016, appropriately uses the installment sales method of accounting for its installment sales. The following data were obtained for sales made during 2016 and 2017:

	2016	2017
Installment sales	520,000	510,000
Cost of installment sales	312,000	408,000
Cash collections on installment sales during:
2016	180,000	135,000
2017	-	140,000

Required:

1. How much gross profit should Charter recognize in 2016 and 2017 from installment sales?

2. What should be the balance in the deferred gross profit account at the end of 2016 and 2017?