A Shipyard Contracted with a Foreign Government to Build a Small

question 127

Essay

A shipyard contracted with a foreign government to build a small naval vessel. The contract calls for the foreign government to pay the shipyard $10,000,000 upon the completion and delivery of the vessel in 2008. The shipyard engineers estimated the costs to complete the vessel at $8,200,000. Under each of the situations that follow, show the income that would have to be reported assuming the percentage-of-completion method is used to recognize income. Show your computations.
a. Income to be reported in 2006, assuming $2,000,000 has been spent and the engineers estimate an additional $6,800,000 will be spent to complete the vessel. 2001 income that should be reported is (pick one below):
$280,000
$272,727
$1,200,000
Computations:
b. Income to be reported in 2007, assuming $6,000,000 has already been spent and the engineers estimate an additional $3,4000,000 will be spent to complete the vessel. 2007 income is (pick one below):
$110,252
$382,978
$548,936
Computations:
c. Income to be reported in 2008, assuming $8,800,000 has already been spent to complete and deliver the vessel to the foreign government, which immediately paid their bill. 2008 income is (pick one below):
$961,022
$777,332
$600,000
$1,200,000
$817,021
Computations:

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Definitions:

Mid-Ocean Ridge

An underwater mountain range formed by plate tectonics, where new oceanic crust is created by volcanic activity and then spreads away from the ridge.

Island Arcs

Curved chains of volcanic islands located along a convergent tectonic plate boundary, formed by the subduction of an oceanic plate beneath another plate.

Basalt Eruptions

Volcanic eruptions that produce basalt, a dark-colored volcanic rock rich in iron and magnesium, characterized by low viscosity lava flows.

Ophiolite

A section of the Earth's oceanic crust and the underlying upper mantle that has been uplifted and exposed above sea level.