on march 31 2010 big boats company entered into a contract with vacations unlimited 699065

Aug 30, 2021 | Uncategorized

On March 31, 2010, Big Boats Company entered into a contract with Vacations Unlimited to produce a state of the art cruise ship, to be completed within three years. Big Boats estimated the total cost of building the ship at $300 million. The contract price was $400 million. The ship was completed on February 15, 2013.

a. What tax accounting method must Big Boats use for the contract? Why?

b. Using the financial data provided relating to the contract’s performance, complete the following schedule:

Date

Total Costs
Incurred to Date

Total Percentage
of Contract
Completed

Current Year
Revenue Accrued

Current Year
Costs Deductible

12/31/10

$ 60 million

______

______

______

12/31/11

180 million

______

______

______

12/31/12

280 million

______

______

______

12/31/13

340 million

N/A

______

______

c. What are the consequences of the total cost of $340 million exceeding the estimated total cost of $300 million?