Answered: ABC Co., a private contractor, wins a… | bartleby

CONCEPTS IN FED.TAX.,2020-W/ACCESS

CONCEPTS IN FED.TAX.,2020-W/ACCESS

20th Edition

ISBN:9780357110362

Author:Murphy

Publisher:Murphy

Chapter3: Income Sources

Section: Chapter Questions

Problem 88P

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Question

ABC Co., a private contractor, wins a bid to construct an
expressway for a provincial government, under the following
terms:
D. The construction shall be finished within 2 years and the
company shall operate and maintain the expressway for 8
years after the completion of the construction.
E. The provincial government shall pay ABC Co. the amount
of P20,000,000 per year for 8 years starting year 3. The
provincial government reserves its rights to collect tolls
from users of the expressway.
F. At the end of the 10th year, ownership and management of
the expressway shall be transferred to the provincial
government.
At the inception of the contract, ABC Co. identified the
following performance obligations with their related stand-
alone selling prices:
C. CONSTRUCTION services: Construction costs + 25%
D. OPERATION services: Operation costs + 20%
Mont
ABC Co. estimated that it will incur total cost of P40,000,000
during the 2-year construction period and annual cost of
P5,000,000 for operating the expressway after construction.
How much is the total interest income, if any, that will be
earned from the BOT Contract?

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