On March 31, 2015, Big Boats Company entered into a contract with Vacations Unlimited to produce a state-of-the-art cruise ship, to be completed within three years. Big Boats estimated the total cost of building the ship at $300 million. The contract price was $400 million. The ship was completed on February 15, 2018.
a. What tax accounting method must Big Boats use for the contract?
Percentage of completion method / Completed contract method /The small contractor exception method
b. Using the financial data provided relating to the contract's performance, complete the following schedule.
Enter dollars in millions. Enter the percents as rounded whole numbers. For example, 62.32% would be entered as 62.
Date Total Costs % of Contract Current-Year Accrued Current-Year
Incurred to Date Completed Revenue Costs Deductible
12/31/15 $90 million % $ million $ million
12/31/16 $150 million % $ million $ million
12/31/17 $270 million % $ million $ million
12/31/18 $360 million % $ million $ million
c. Complete the following statement regarding the consequences of the total cost of $360 million exceeding the estimated total cost of $300 million.
Big Boats will receive interest on the overpayment of taxes(a. 2015 b. 2015 and 2016 c. 2015,2016,2017 d.2018) in as income was (overstated/ udnerstated)
Answers: 1
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