Cost to Cost Method
The company signed an $800,000 contract to build an environmentally friendly access trail to South Willow Lake. The project was expected to take approximately three years. The following information was collected for each year of the project—Year 1, Year 2, and Year 3:
|
|
Cost |
Expected |
Support |
Additional |
Trail Feet |
Additional |
|
|
Expended |
Additional |
Timbers |
Support |
Constructed |
Trail Feet |
|
|
during |
Cost to |
Laid during |
Timbers |
during |
to Be |
|
|
the Year |
Completion |
the Year |
to Be Laid |
the Year |
Constructed |
|
Year 1 |
$100,000 |
$450,000 |
150 |
850 |
3,000 |
15,200 |
|
Year 2 |
150,000 |
280,000 |
300 |
520 |
7,500 |
8,200 |
|
Year 3 |
250,000 |
0 |
500 |
0 |
8,000 |
0 |
The company uses the percentage of completion method of computing revenue from long term construction contracts. Assume that the company employs the cost to cost method of estimating the percentage of completion. Compute the amount of revenue to be recognized in (1) Year 1, (2) Year 2, and (3) Year 3.