Red Builders agrees to construct a new building for Blue Co. for a total contract...
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Accounting
Red Builders agrees to construct a new building for Blue Co. for a total contract price of $6,000,000. The estimated construction costs at inception was $4,000,000. The construction project was completed after three years. Below are the actual costs for years 1 and 2:
| Description | Cumulative | |
|
| Year 1 | Year 2 |
| Cost incurred to date | 1,200,000 | 2,500,000 |
| Estimated additional costs to complete | 3,600,000 | 2,100,000 |
| Billings | 1,050,000 | 2,300,000 |
| Cash Collections | 1,000,000 | 1,900,000 |
Red has determined that this contract qualifies for revenue recognition over time (as opposed to upon completion). As a result, Red Builders should have recognized profit at the end of year 2 in the amount of:
| $3,260,870 | ||
| $1,760,870 | ||
| $460,870 | ||
| None of the above | ||
| $760,870 |
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