Compute the revenue recognized, construction costs expensed

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Reference no: EM13138813

On December 31, 2009, Tri-State Construction Inc. signs a contract with the state of Texas Department of Transportation to manufacture a bridge over the Rio Grande. Tri-State anticipates the construction will take three years. The company’s accountants provide the following contract details relating to the project:

Contract price $210 million
Estimated construction costs $150 million
Estimated total profit $ 60 million

During the three-year construction period, Tri-State incurred costs as follows:

2010 $ 15 million
2011 $ 90 million
2012 $ 45 million

Compute the revenue recognized, construction costs expensed, and income earned for each year using the percentage of completion method. Explain the potential risks associated with this accounting method and discuss why an analyst would be interested in researching it further?

Reference no: EM13138813

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