Juan Corporation Signed a Contract for $975,000 to Construct a Small

question 61

Essay

Juan Corporation signed a contract for $975,000 to construct a small shopping centre for a large retail conglomerate.Construction is expected to take three years and cost $750,000.
Actual results were: $\begin{array}{lll}\text { Year }&\text { Costs }&\text { Receipts }\\\hline 2012 & \$ 150,000 & \$ 125,000 \\2013 & \$ 375,000 & \$ 375,000 \\2014 & \$ 225,000 & \$ 475,000\end{array}$ Required:
A) Compute the revenue and expenses for each year using the percentage-of-completion method.B) Compute the revenue and expenses for each year using the cost recovery method.
C) Compute the gross profit margin for each year under each of the two methods.
D) Which method of revenue recognition would be more useful to the shareholders of Juan Corporation? Why?

• A) Compute the revenue and expenses for each year using the percentage-of-completion method.B) Compute the revenue and expenses for each year using the cost recovery method.
• C) Compute the gross profit margin for each year under each of the two methods.
• D) Which method of revenue recognition would be more useful to the shareholders of Juan Corporation? Why?

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Definitions:

Supplemental Payments

Extra payments received in addition to regular income, such as bonuses or overtime pay, which can affect a taxpayer's AGI.

Self-Employment Taxes

Taxes paid by self-employed individuals, covering Social Security and Medicare taxes, based on net earnings from self-employment.

Ceiling Amount

A maximum limit placed on the value, income, or other financial metric that can be used for calculations, such as determining eligibility for tax deductions or credits.

Multi-Part W-3

A comprehensive summary form submitted by employers to the IRS, detailing total earnings, tax withholdings, and other payroll information for employees.