Supplier Corp. enters into a government contract during the year to provide computer equipment for $3.200.000. The contract consists of a single performance obligation to provide specified equipment in three years. Total costs estimated by Supplier Corp. for the contract are $2.240,000. The equipment is highly specialized and has no alternative uses. As negotiated in the contract, any costs incurred by Supplier Corp. plus a specified profit margin will be paid to Supplier Corp. in the event of a contract cancellation. Actual costs incurred during the first year of the contract were $1.024.000 including unexpected cost overruns of $128.000 due to labor inefficiencies. Assume that at the end of the second year of the contract, the estimate of total costs has increased to $2.400.000 million due to an increase in cost of materials. Actual costs incurred to date are $1,800,000, excluding year one inefficiencies.

Supplier Corp. enters into a government contract during the year to provide computer equipment for $3.200.000. The contract consists of a single performance obligation to provide specified equipment in three years. Total costs estimated by Supplier Corp. for the contract are $2.240,000. The equipment is highly specialized and has no alternative uses. As negotiated in the contract, any costs incurred by Supplier Corp. plus a specified profit margin will be paid to Supplier Corp. in the event of a contract cancellation. Actual costs incurred during the first year of the contract were $1.024.000 including unexpected cost overruns of $128.000 due to labor inefficiencies. Assume that at the end of the second year of the contract, the estimate of total costs has increased to $2.400.000 million due to an increase in cost of materials. Actual costs incurred to date are $1,800,000, excluding year one inefficiencies.

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter17: Advanced Issues In Revenue Recognition

Section: Chapter Questions

Problem 18RE

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