Destiny Apartments Inc. (DA Inc.)is building a luxury condominium for a contract price of $68,000,000. This is estimated to be a three-year project with an estimated cost of $54,000,000. DA Inc. uses the percentage of completion method of revenue recognition, using the cost-to-cost method of estimating the percentage complete. The following is the best available information at the end of each year:
Required:
a. Explain how the percentage completion method reduced information asymmetry and guards against moral hazard.
b. Compute the amount of gross profit to be recognized in Year 1, Year 2, and Year 3. Show computations in tabular form provided below:
c. Complete the PARTIAL Balance Sheet for Year 2
Current assets
Current Liabilities

Question

Destiny Apartments Inc. (DA Inc.)is building a luxury condominium for a contract price of $68,000,000. This is estimated to be a three-year project with an estimated cost of $54,000,000. DA Inc. uses the percentage of completion method of revenue recognition, using the cost-to-cost method of estimating the percentage complete. The following is the best available information at the end of each year:
  Required:
a. Explain how the percentage completion method reduced information asymmetry and guards against moral hazard.
b. Compute the amount of gross profit to be recognized in Year 1, Year 2, and Year 3. Show computations in tabular form provided below:
  c. Complete the PARTIAL Balance Sheet for Year 2
Current assets
  Current Liabilities

Quizplus · Accepted Answer

The Answer of Destiny Apartments Inc. (DA Inc.)is building a luxury condominium for a contract price of $68,000,000. This is estimated to be a three-year project with an estimated cost of $54,000,000. DA Inc. uses the percentage of completion method of revenue recognition, using the cost-to-cost method of estimating the percentage complete. The following is the best available information at the end of each year:
  Required:
a. Explain how the percentage completion method reduced information asymmetry and guards against moral hazard.
b. Compute the amount of gross profit to be recognized in Year 1, Year 2, and Year 3. Show computations in tabular form provided below:
  c. Complete the PARTIAL Balance Sheet for Year 2
Current assets
  Current Liabilities