Indiana Co. began a construction project in 2018 with a contract price of $161 m
ID: 2555473 • 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 $34 million of costs and estimates an additional $81 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.
In 2019, Indiana incurred additional costs of $59 million and estimated an additional $36 million in costs to complete the project. Indiana
A.Recognized $30.50 million gross profit on the project in 2019.
B.Recognized $8.00 million gross profit on the project in 2019.
C.Recognized $32.00 million gross profit on the project in 2019.
D. Recognized $9.47 million gross profit on the project in 2019.
Explanation / Answer
Gross profit to be recognized each year under the Percentage of completion method = [(costs incurred till date / total estimated costs) * expected profit] - previously recognized profits.
Costs incurred till date in 2018 = 34
Total estimated costs in 2018 = 34 + 81 = 115
Expected profit in 2018 = 161 - 115 = 46
Previously recognized profits in 2018 = 0
Gross profit to be recognized in 2018 = (34 / 115 *46) - 0 = 13.6
Costs incurred till date in 2019 = 34 + 59 = 93
Total estimated costs in 2019 = 93 + 36 = 129
Expected profit in 2019 = 161 - 129 = 32
Previously recognized profits in 2019 = 13.6
Gross profit to be recognized in 2019 = (93/129*32) - 13.6 = 9.47
The answer is D