On March 1, 2017, the Company entered into an agreement with acustomer, Thornock Square...

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Accounting

On March 1, 2017, the Company entered into an agreement with acustomer, Thornock Square Apartments, to construct a residentialapartment building for a fixed price of $1.5 million. The Companyestimates that it will incur costs of $1 million to completeconstruction of the apartment building. The apartment building willonly transfer to Thornock Square Apartments once the constructionof the entire building is complete. In addition, Thornock SquareApartments has various design requirements that would requireCannon to incur significant costs to rework the building prior toselling it to a customer other than Thornock SquareApartments.
To construct the apartment building, Cannon acquires standardmaterials that it regularly uses in construction contracts for bothresidential and commercial buildings. These materials are used tomanufacture generic component parts for inclusion in ThornockSquare Apartments’ residential buildings. These standard materialsremain interchangeable with other items until they are deployed inThornock Square Apartments building. The Company has made thefollowing purchases and incurred the following costs throughout theconstruction progress:
A. As of June 30, 2017, in total, Cannon has purchased $75,000 ofcomponent parts. As of June 30, 2017, $25,000 of component partsremain in inventory and $50,000 have been integrated into theproject. Further, Cannon has incurred $12,500 of direct costs tointegrate the component parts into the Thornock Square Apartmentsconstruction project during the three months ended June 30,2017.
B. During the three months ended September 30, 2017, Cannonpurchased an additional $500,000 of component parts ($575,000 intotal). Of the $575,000 of component parts, $325,000 remain ininventory and $200,000 have been integrated into the project duringthe three months ended September 30, 2017. During the three monthsended September 30, 2017, Cannon incurred an additional $50,000 ofdirect costs to integrate the component parts into the ThornockSquare Apartments construction project.
C. As of September 30, 2017, Cannon determined that the project wasover budget and revised its cost estimate from $1 million to $1.25million.
D. As of December 31 2017, the construction project was completed.During the three months ended December 31, 2017, Cannon purchasedan additional $425,000 of generic component parts ($1 million intotal). Of the $1 million component parts, $0 remain in inventoryand $750,000 were integrated into the project during the threemonths ended December 31, 2017. Cannon has incurred $187,500 ofdirect costs to integrate the component parts into the ThornockSquare Apartments construction project during the three monthsended December 31, 2017.
If Thornock Square Apartments cancels the contract, Cannon will beentitled to reimbursement for costs incurred for work completed todate plus a margin of 20 percent, which is considered to be areasonable margin. Cannon will not be reimbursed for any materialsthat have been purchased for use in the contract but have not yetbeen used and are still controlled by Cannon.
1) What amount of revenue should be recognized for the followingperiods: a. The three months ended June 30, 2017? b. The threemonths ended September 30, 2017? c. The three months ended December31, 2017? Please explain calculations
2)Create a revenue recognition summary table which summarisesthe calculations used to find the revenue in each quarter
3)How should the entity recognize revenue for the satisfactionof its performance obligation in FASB code?
(All other chegg answers were wrong for this question)

Answer & Explanation Solved by verified expert

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Note Revenue will be recognised using cost completion method Cost of materials which have been used in project will be used to calculate percentage of work completion Sub part 1 Revenue for June 2017 Cost of Materials used 50000 Other Costs incurred 12500 Total costs to date 62500 of work completion Total costs to date Total estimated costs 62500 1000000 625 Revenue to be recognised in June Total revenue x of See Answer

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In: AccountingOn March 1, 2017, the Company entered into an agreement with acustomer, Thornock Square Apartments,...On March 1, 2017, the Company entered into an agreement with acustomer, Thornock Square Apartments, to construct a residentialapartment building for a fixed price of $1.5 million. The Companyestimates that it will incur costs of $1 million to completeconstruction of the apartment building. The apartment building willonly transfer to Thornock Square Apartments once the constructionof the entire building is complete. In addition, Thornock SquareApartments has various design requirements that would requireCannon to incur significant costs to rework the building prior toselling it to a customer other than Thornock SquareApartments.To construct the apartment building, Cannon acquires standardmaterials that it regularly uses in construction contracts for bothresidential and commercial buildings. These materials are used tomanufacture generic component parts for inclusion in ThornockSquare Apartments’ residential buildings. These standard materialsremain interchangeable with other items until they are deployed inThornock Square Apartments building. The Company has made thefollowing purchases and incurred the following costs throughout theconstruction progress:A. As of June 30, 2017, in total, Cannon has purchased $75,000 ofcomponent parts. As of June 30, 2017, $25,000 of component partsremain in inventory and $50,000 have been integrated into theproject. Further, Cannon has incurred $12,500 of direct costs tointegrate the component parts into the Thornock Square Apartmentsconstruction project during the three months ended June 30,2017.B. During the three months ended September 30, 2017, Cannonpurchased an additional $500,000 of component parts ($575,000 intotal). Of the $575,000 of component parts, $325,000 remain ininventory and $200,000 have been integrated into the project duringthe three months ended September 30, 2017. During the three monthsended September 30, 2017, Cannon incurred an additional $50,000 ofdirect costs to integrate the component parts into the ThornockSquare Apartments construction project.C. As of September 30, 2017, Cannon determined that the project wasover budget and revised its cost estimate from $1 million to $1.25million.D. As of December 31 2017, the construction project was completed.During the three months ended December 31, 2017, Cannon purchasedan additional $425,000 of generic component parts ($1 million intotal). Of the $1 million component parts, $0 remain in inventoryand $750,000 were integrated into the project during the threemonths ended December 31, 2017. Cannon has incurred $187,500 ofdirect costs to integrate the component parts into the ThornockSquare Apartments construction project during the three monthsended December 31, 2017.If Thornock Square Apartments cancels the contract, Cannon will beentitled to reimbursement for costs incurred for work completed todate plus a margin of 20 percent, which is considered to be areasonable margin. Cannon will not be reimbursed for any materialsthat have been purchased for use in the contract but have not yetbeen used and are still controlled by Cannon.1) What amount of revenue should be recognized for the followingperiods: a. The three months ended June 30, 2017? b. The threemonths ended September 30, 2017? c. The three months ended December31, 2017? Please explain calculations2)Create a revenue recognition summary table which summarisesthe calculations used to find the revenue in each quarter3)How should the entity recognize revenue for the satisfactionof its performance obligation in FASB code?(All other chegg answers were wrong for this question)