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How much revenue is recognized in the first year of contract

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Reference no: EM132779892

VALEDICTION Construction Co. entered into an ?80M fixed price contract for the construction of a private road for FAREWELL SPEECH, Inc. The performance obligation on the contract is satisfied over time. VALEDICTION measures its progress on the contract using the "cost-to-cost" method. The estimated total contract cost is ?40M.

VALEDICTION incurred the following costs in the first year of the construction:

Costs of negotiating the contract (charged immediately as expense) 400,000
Costs of materials used in construction 12,000,000
Costs of materials purchased but not yet used in construction 2,000,000
Site labor costs 4,000,000
Site supervision costs 800,000
Depreciation of equipment used in construction 480,000
Depreciation of idle equipment not used in the contract 240,000
Costs of moving equipment and materials to and from the construction site 160,000
Costs of hiring equipment 560,000
Advance payment to subcontractor (the subcontracted work is not yet started) 80,000

Problem 1: How much revenue is recognized in the first year of the contract?

a. 25M
b. 45M
c. 46M
d. 36M

Reference no: EM132779892

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