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What is the recognized gross profit

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Question - In Feb. 2018, Siemens Engineering Co. signed a $240 million contract to construct a new city hall within two years. The city will pay $180 million within six months, and the rest $60 million one year later.

Siemens expects that total cost would be $180 million, with $72 million costs incurred during 2018, and rest of the cost will incur in 2019.

A) Using the cost-to-cost method, how much revenue should Siemens recognize in 2018 and 2019 respectively? What is the recognized gross profit in 2018 and 2019?

B) If in Feb. 2018, Siemens deliberately under-estimates the total construction cost as only $160 million. Assume everything else about the project remains unchanged, what would be the recognized gross profit in 2018 and 2019 instead?

Reference no: EM133167010

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