Coral Corporation builds large cruise ships on a contract basis. The company uses the percentage of completion method of revenue recognition. The following information pertains to the construction contracts it had in place as of its December 31, 2012 year-end.
Required:
a. Calculate the revenue to be recognized in 2011 and in 2012.
b. While examining the Coral financial statements, the auditors noted that there was an error in the estimate of costs to complete the contracts in 2011. The cost to complete should have been $600 million instead of $800 million. Explain how this would be accounted for in the financial statements.
c. In light of the evidence noted in (b), how much revenue should be recognized in 2012?

Question

Coral Corporation builds large cruise ships on a contract basis. The company uses the percentage of completion method of revenue recognition. The following information pertains to the construction contracts it had in place as of its December 31, 2012 year-end.
  Required:
a. Calculate the revenue to be recognized in 2011 and in 2012.
b. While examining the Coral financial statements, the auditors noted that there was an error in the estimate of costs to complete the contracts in 2011. The cost to complete should have been $600 million instead of $800 million. Explain how this would be accounted for in the financial statements.
c. In light of the evidence noted in (b), how much revenue should be recognized in 2012?

Quizplus · Accepted Answer

The Answer of Coral Corporation builds large cruise ships on a contract basis. The company uses the percentage of completion method of revenue recognition. The following information pertains to the construction contracts it had in place as of its December 31, 2012 year-end.
  Required:
a. Calculate the revenue to be recognized in 2011 and in 2012.
b. While examining the Coral financial statements, the auditors noted that there was an error in the estimate of costs to complete the contracts in 2011. The cost to complete should have been $600 million instead of $800 million. Explain how this would be accounted for in the financial statements.
c. In light of the evidence noted in (b), how much revenue should be recognized in 2012?

Coral Corporation Builds Large Cruise Ships on a Contract Basis