In spring 2014, Parmac Engineering Company signed a $160 million contract with the city of Parkersburg, to construct a new city hall. Parmac expects to construct the building within two years and incur expenses of $120 million. The city of Parkersburg paid $40 million when the contract was signed, $80 million within the next six months, and the final $40 million exactly one year from the signing of the contract. Parmac incurred $48 million in costs during 2014 and rest in 2015 to complete the contract on time. (Numerical calculations required)

Using the percentage-of-completion method how much revenue should Parmac recognize in 2014? Select one:

a. $40 million

b. $120 million

c. $64 million

d. $80 million

e. None of the above

Question

Makena Holloway

Business

10 May, 00:13

In spring 2014, Parmac Engineering Company signed a $160 million contract with the city of Parkersburg, to construct a new city hall. Parmac expects to construct the building within two years and incur expenses of $120 million. The city of Parkersburg paid $40 million when the contract was signed, $80 million within the next six months, and the final $40 million exactly one year from the signing of the contract. Parmac incurred $48 million in costs during 2014 and rest in 2015 to complete the contract on time. (Numerical calculations required)

Using the percentage-of-completion method how much revenue should Parmac recognize in 2014? Select one:

a. $40 million

b. $120 million

c. $64 million

d. $80 million

e. None of the above

+1

Answers (1)

Know the Answer?

Gabriella Mckinney · Answer 1

c. $64 million

Explanation:

For computing the revenue recognized, first we have to determine the percentage which is shown below:

= Cost incurred in 2014 : expenses incurred

= $48 million : $120 million

= 40%

And, the contract price is $160 million

So, the revenue recognized would be

= Contract price * percentage

= $160 million * 40%

= $64 million