In spring 2012, Mainline Engineering Company signed an $80 million contract with the city of Duluth, to construct a new city hall. Mainline expects to construct the building within two years and incur expenses of $60 million. The city of Duluth paid $20 million when the contract was signed, $40 million within the next six months, and the final $20 million exactly one year from the signing of the contract. Mainline incurred $24 million in costs during 2012 and rest in 2013 to complete the contract on time. Using the percentage-of-completion method how much revenue should Mainline recognize in 2012?

Question

Ian Castaneda

Business

22 July, 01:45

In spring 2012, Mainline Engineering Company signed an $80 million contract with the city of Duluth, to construct a new city hall. Mainline expects to construct the building within two years and incur expenses of $60 million. The city of Duluth paid $20 million when the contract was signed, $40 million within the next six months, and the final $20 million exactly one year from the signing of the contract. Mainline incurred $24 million in costs during 2012 and rest in 2013 to complete the contract on time. Using the percentage-of-completion method how much revenue should Mainline recognize in 2012?

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Answers (1)

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Arely Goodman · Answer 1

Mainline should recognize a revenue of $32 million in 2012.

Explanation:

percentage-of-completion method:

Total Expenses = $60 million

Expenses during the Year 2012 = $24 million

Percentage of complition = 24/60

= 40%

Revenue can be recognised = $80 million*40%

= $32 million

Therefore, Mainline should recognize a revenue of $32 million in 2012.