Reference no: EM132950158
On January 1, 20x6, Bad, a real estate company, entered into a contract to construct a subdivision on a piece of land it has acquired and, when construction is complete, to deliver the finished houses to their customers. The following data pertains to the said contract each customer is to sign. Each house costs $4,000,000 each (a total of 10 houses are to be constructed). Construction will take 2 years to complete. Payment terms are 50% by the end of the 1st year, 25% at the end of the 2nd year and the balance will be paid after 3 months from the final turn-over. The client can transfer the contract to another, should they not feel satisfied with the house on or before the house is 50% complete.
The company incurred the following expenses for 20x6.
- Total cost of land - $2,000,000;
- Estimated total cost of construction - $25,000,000, (including the costs for the common areas, streets and light posts amounting to $5,000,000);
- Estimated total cost of contract for the 10 houses - $40,000,000;
In CY 20x6, total construction cost incurred amount to $13,000,000 with all common areas already fully constructed, while fair value of the land is now worth $3,500,000. The contract is considered to be a multiple contract.
Problem 1: What is the amount of revenue to be recorded for the year by Bad?
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