Question

ndiana Co. began a construction project in 2021 with a contract price of $150 million to be received when the project is completed in 2023. During 2021, Indiana incurred $36 million of costs and estimates an additional $84 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 2022, Indiana incurred additional costs of $58.5 million and estimated an additional $40.5 million in costs to complete the project. Indiana:

A. Recognized $15 million gross profit on the project in 2022.

B. Recognized $13.5 million gross profit on the project in 2022.

C. Recognized $6 million gross profit on the project in 2022.

D. Recognized $1.5 million gross profit on the project in 2022.

Answer 1

• Correct Answer = Option ‘D’ Recognise $ 1.50 millions gross profit in 2022
• Working

>Amount is in $ millions

Working		Year end 2021	Year end 2022
A	Contract Price	$                   150.00	$                   150.00
B	Cost Incurred to Date	$                     36.00	$                     94.50 [36 + 58.50]
C	Estimated cost yet to be incurred to complete the contract	$                     84.00	$                     40.50
D = B+C	Total Cost	$                   120.00	$                   135.00
E = (B/D) x 100	% of Completion	30.00%	70.00%
F = A x E	Revenue to date	$                     45.00	$                   105.00
G	Revenue of Previous year	$                            -	$                     45.00
H = F - G	Net Revenue this year	$                     45.00	$                     60.00
I (=B)	Cost to date	$                     36.00	$                     94.50
J	Cost to date of previous year	$                            -	$                     36.00
K = I - J	Net Cost for the year	$                     36.00	$                     58.50
L = H - K	Gross Profits	$                        9.00	$                       1.50 ANSWER