Crane Construction is constructing an office building under contract for Cannon Company and uses the percentage-of-completion method. The contract calls for progress billings and payments of $1450000 each quarter. The total contract price is $18168000 and Crane estimates total costs of $17250000. Crane estimates that the building will take 3 years to complete, and commences construction on January 2, 2018. At December 31, 2018, Seasons estimates that it is 30% complete with the construction, based on costs incurred. What is the total amount of Revenue and Profit from Long-Term Contracts recognized for 2018?

Revenue recognized for 2018 is $5,450,400

Profit for the same year is $275,400

Explanation:

The is a method of revenue recognition known as cost to completion. It is used to recognize revenue from long term projects which are mostly construction contracts that will not be completed in a year. In this system, the revenue to be recognized is a function of the cost.

As such, where 30% of the total cost of the project is incurred in the first year, 30% of the total revenue will also be recognized in the first year. The difference between the revenue and the cost gives the profit.

Given that total revenue for 3 years is $18168000

Revenue to be recognized

= 30/100 * $18,168,000

= $5,450,400

Cost incurred

= 30/100 * $17,250,000

= $5,175,000

Profit for 2018

= $5,450,400 - $5,175,000

= $275,400