Atlantic Ferries arranged for Columbus Shipbuilders to build three new ferries for its Nova Scotia to Prince Edward Island run. Atlantic agreed to pay $22.5 million for the ferries ($7.5 million each). The contract was signed on June 30, 2011, with a delivery date of September 30, 2013. Atlantic agreed to pay the $22.5 million as follows:
$4 million at the signing of the contract
$9.5 million on December 31, 2012
$9 million on September 30, 2012 (at completion)
The following costs were incurred by Columbus Shipbuilders (in millions):
2011……………………… $ 3.2
2012……………………… 7.1
2013……………………… 6.9
Total………………………$17.2
Required:
a. Calculate the revenue, expense, and profit (ignoring interest) that Columbus Shipbuilders should report for each of the three years, using the percentage of completion method.
b. What should Columbus Shipbuilders do if, in 2010, it determines that it will cost more than $22.5 million to complete the three ferries?