Posted: November 30th, 2015

Sanderson Construction Case

E5-10 On June 15, 2011, Sanderson Construction entered into a long-term construction contract to build

E5-10 On June 15, 2011, Sanderson Construction entered into a long-term construction contract to build a baseball stadium in Washington D.C. for $220 million. The expected completion date is April 1 of 2013, just in time for the 2013 baseball season. Costs incurred and estimated costs to complete at year-end for the life of the contract are as follows ($ in millions):

2011 2012 2013 Costs incurred during the year $40 $80 $50 Estimated costs to complete as of 12/31

1. Determine the amount of gross profit or loss to be recognized in each of the three years using the percentage- of-completion method.
2. How much revenue will Sanderson report in its 2011 and 2012 income statements related to this contract using the percentage-of-completion method?
3. Determine the amount of gross profit or loss to be recognized in each of the three years using the completed contract method.
4. Determine the amount of revenue, cost, and gross profit or loss to be recognized in each of the three years under IFRS, assuming that using the percentage-of-completion method is not appropriate.

5. Suppose the estimated costs to complete at the end of 2012 are $80 million instead of $60 million. Determine the amount of gross profit or loss to be recognized in 2012 using the percentage-of-completion method.