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, 2021 year-end.
$$\begin{array} { | l | r | r | }
\hline & 2020 & 2021 \
\hline \text { Cost incurred to date } & 200 \text { million } & 400 \text { million } \
\hline \text { Costs to complete contracts } & 800 \text { million } & 600 \text { million } \
\hline \text { Total price of contracts outstanding at December } & & \
\hline 1,2021 & 2,000 \text { million } & 2,500 \text { million } \
\hline \text { Revenue } & ? ? ? ? & ? ? ? \
\hline
\end{array}$$ Required:
a. Calculate the revenue to be recognized in 2020 and in 2021.
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 2020. 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 2021?

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, 2021 year-end.
 $$\begin{array} { | l | r | r | } 
\hline & 2020 & 2021 \
\hline \text { Cost incurred to date } & 200 \text { million } & 400 \text { million } \
\hline \text { Costs to complete contracts } & 800 \text { million } & 600 \text { million } \
\hline \text { Total price of contracts outstanding at December } & & \
\hline 1,2021 & 2,000 \text { million } & 2,500 \text { million } \
\hline \text { Revenue } & ? ? ? ? & ? ? ? \
\hline
\end{array}$$ Required:
a. Calculate the revenue to be recognized in 2020 and in 2021.
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 2020. 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 2021?

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, 2021 year-end.
 $$\begin{array} { | l | r | r | } 
\hline & 2020 & 2021 \
\hline \text { Cost incurred to date } & 200 \text { million } & 400 \text { million } \
\hline \text { Costs to complete contracts } & 800 \text { million } & 600 \text { million } \
\hline \text { Total price of contracts outstanding at December } & & \
\hline 1,2021 & 2,000 \text { million } & 2,500 \text { million } \
\hline \text { Revenue } & ? ? ? ? & ? ? ? \
\hline
\end{array}$$ Required:
a. Calculate the revenue to be recognized in 2020 and in 2021.
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 2020. 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 2021?

Coral Corporation Builds Large Cruise Ships on a Contract Basis