JJ Construction Inc. entered into a contract with a customer to build a movable storage facility on January 1, 2020, for $1,500,000. JJ Construction Inc. owns the work in process and constructs this type of storage unit for a number of customers. The customer made a down payment of 10% of the project, with an additional 10% due at the end of year one and the remaining due when it takes control of the facility. The facility is expected to be completed in two years for a total cost of $1,200,000. Actual costs incurred through December 31, 2020, are $500,000. Determine the amount of revenue to record in 2020.

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abiolataiwo2015 abiolataiwo2015 · Answer 1 · 2022-03-30T11:58:51+02:00

Based on the information given the amount of revenue to record in 2020 is: $630,000.

First step is to calculate the % of work completed by December 31, 2020

% of work completed by December 31, 2020 = Actual cost incurred / Total estimated costs

% of work completed by December 31, 2020=$500,000 / $1,200,000

% of work completed by December 31, 2020=41.6%

% of work completed by December 31, 2020= 42%(Approximately)

Now let calculate the amount of revenue to record in 2020

Amount of revenue to record in 2020 = Total contract price×% completion

Amount of revenue to record in 2020 = $1,500,000×42%

Amount of revenue to record in 2020 = $630,000

Therefore the amount of revenue to record in 2020 assuming that the cost-to-cost method is used is $630,000.

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