Long-Term Contract. King Construction Company is engaged in
a road construction contract ro build a highway over a three-year period. King
will receive $11,200,000 for building five miles of highway . King estimates
char it will incur $10,000,000 of costs before the contract is comp leted. As
of the end of the first year King incurred $3,000,000 of costs allocated to the
contract.
a. How much income from the contract must King report during
the first year?
b. Assume King incurs an add itiona l $5,000,000 of coses
during the second year. How much income is reported during that year?
c. Assume that King incurs an additional $2,500,000 of costs
in the third and final year of the contract. How much does King report during
the third year?
d. Will King receive or pay look -back interest? Explain.
Leave a Reply