Question

Indiana Co. began a construction project in 2018 with a contract price of $163 million to be received when the project is completed in 2020. During 2018, Indiana incurred $37 million of costs and estimates an additional $82 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 $58 million and estimated an additional $36 million in costs to complete the project. Indiana: (Do not round your percentage calculated): Multiple Choice O Recognized $6.00 million gross profit on the project in 2019. O Recognized $32.00 million gross profit on the project in 2019. O Recognized $30.50 million gross profit on the project in 2019. O Recognized $9.53 million gross profit on the project in 2019.

Answer 1

Answer:

$9.526m

Explanation:

Step 1 - DETERMINE PROFIT OR LOSS UPON COMPLETION

Contract Sum = $163m

Contract cost to date ($37m (in 2018) + $58 (in 2019)) = $95m

Estimate additional cost................,,........................................= $36

TOTAL CONTRACT COSTS ...............................= (95+36) $131m

Profit on contract upon completion (163-131) = .................$32

Step 2 - DETERMINE PERCENTAGE COMPLETION

% Completion of Contract = cost to date/ Total Cost to complete

95/131 = 72.52%

Step 3 - DETERMINE PROFIT TO DATE

Profit to date = % completion * Profit upon completion = 72.52%*32 = $23.21

However in 2018 we recognized some profit which must be subtracted from total profit to date in 2019

2018 Calculations:

Step 1

Contract price = 163

Cost to date = 37+82

Profit = $44m

Step 2

% completion in 2018 = 37/(37+82) = 31.1%

Step 3

Profit recognised in 2018 = 31.1%*44 = $13.684m

Hence 2019 Profit alone = $23.21 -  $13.684 = $9.526m