Answer: C) Recognized $9 million gross profit on the project in 2018.
Explanation:
Duration of construction project from 2018 to 2020 = 3 years
Cost incurred by Indiana co. in 2018 = $36 million
Estimated additional cost for the remainder of the project = $84 million
Total cost to be incurred over the duration of the project = $36 million + $84 million = $120 million
To calculate the percentage of the project completed, we use the cost figures;
Cost incurred so far (in 2018) ÷ Total cost to be incurred × 100
36,000,000/ 120,000,000 × 100 = 30%
Total revenue from contract (which is the contract price) = $150 million
Indiana Co. recognizes revenue according to the percentage of the project completed. Therefore, revenue recognized after 30% of the project is completed (which is the revenue for 2018) = 30% of $150,000,000
Revenue for 2018 = 30/100 × 150,000,000 = $45,000,000
Profit recognized on the project in 2018 = Revenue for 2018 - Cost incurred in 2018
Profit = $45,000,000 - $36,000,000
Gross profit recognized in 2018 = $9,000,000
