Question

Red & Blue Corporation signs a contract at the beginning of 2020 to build a road...

Red & Blue Corporation signs a contract at the beginning of 2020 to build a road for the government.  Constructionwill take four years.  The following information is available on the contract.  

Total revenue =           $ 15,000,000

Total expected cost =       $ 12,000,000

Cost incurred during 2020 = $   4,500,000

If Red & Blue Corporation uses the prorata method, then how much revenue will the company recognize from the project for the year 2020?

a.

None
b.

$3,750,000
c.

$4,750,000
d.

$5,625,000
Business   Accounting   
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Answer #1

For Red & Blue Corporation

Calculation of the Revenue to be Recognised from the project for the year 2020 using Pro rata Method:

Total Revenue = $15,000,000

Total Expected Cost = $12,000,000

Cost Incurred during 2020 = $4,500,000

Percentage Completion = (Cost Incurred during 2020/ Total Expected Cost) * 100

Percentage Completion = ($4,500,000 / $12,000,000) * 100 = 37.5%

Revenue to be Recognised = Total Revenue * Percentage Completion

Revenue to be Recognised = $15,000,000 * 37.5% = $5,625,000 (Option D)

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