Indiana Co. began a construction project in 2018 with a contract price of $161 m
ID: 2333032 • Letter: I
Question
Indiana Co. began a construction project in 2018 with a contract price of $161 million to be received when the project is completed in 2020. During 2018, Indiana incurred $39 million of costs and estimates an additional $87 million of costs to complete the project. Indiana recognizes revenue over time and for this project recognizes revenue over time according to the percentage of the project that has been completed. Suppose that, in 2019, Indiana incurred additional costs of $67 million and estimated an additional $53 million in costs to complete the project. Indiana (Do not round your percentage calculated): Multiple Choice Recognized $3.00 million loss on the project in 2019. Recognized $12.5 million gross profit on the project in 2019. Recognized $9.5 million loss on the project in 2019. Recognized $9.5 million gross profit on the project in 2019.
Explanation / Answer
Answer: Recognized $9.5 million loss on the project in 2019.
Calculations:
2018 2019 Costs incurred till date 39 106 Estimated costs to complete 87 53 Total costs estimated 126 159 % of completion 30.95% 66.67% Total contract value 161 161 Gross profit 35 2 Gross profit/(Loss) to be recognized 10.83 1.33 GP recognized previously 0 10.83 Gross profit/(Loss) to be recognized this year 10.83 1.33