Question

A construction firm enters a long-term contract to build a bridge, which was completed in Year...

A construction firm enters a long-term contract to build a bridge, which was completed in Year 4. The expected and actual cash receipts and disbursements for the   project (in millions) are as follows:

year Receipts Expenditures
1 3,000 4,000
2 4,000 3,000
3 5,000 2,000
4 8,000 1,000
Total 20,000 10,000

What is the income before taxes during each year under Installment Method of revenue recognition?   

Homework Answers

Answer #1

Under Installment method ,Revenue is recognized in the period cash is received or revenue recognition is deferred until cash is received .

Gross Profit = Total receipts -Total expenditures

                = 20000 -10000

                = 10000

Year Receipts Gross Profit
% of cash receipts to total receipts Amount of Gross profit (Income before income taxes)
1 3000 3000/20000=.15 or 15 10000*15%= 1500
2 4000 4000/20000 = .20 or 20% 10000*20%=2000
3 5000 5000/20000 = .25 or 25% 10000*25%=2500
4 8000 8000/20000= .40 or 40% 10000*40%=4000
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