Cinnabar Construction Company has consistently used the input method based on costs incurred to recognize revenue from a performance obligation satisfied over time. During Year 1, Cinnabar entered into a fixed-price contract to construct an office building for $10 million. Information relating to the contract is as follows:
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December 31 |
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Year 1 |
Year 2 |
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Progress to completion |
20% |
60% |
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Estimated total costs |
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at completion |
$7,500,000 |
$8,000,000 |
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Gross profit recognized |
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(cumulative) |
500,000 |
1,200,000 |
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Contract costs incurred during Year 2 were
A.$3,500,000
B.$3,300,000
C.$3,200,000
D.$4,800,000
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| Cinnabar Construction Company | ||
| Year 1 | Year 2 | |
| Fixed-price contract | 10,000,000.00 | 10,000,000.00 |
| Progress to completion | 20% | 60% |
| Revenue recognized | 2,000,000.00 | 6,000,000.00 |
| Less: Gross profit recognized (cumulative) | 500,000.00 | 1,200,000.00 |
| Costs incurred (cumulative) | 1,500,000.00 | 4,800,000.00 |
| Contract costs incurred during Year 2 | 3,300,000.00 | |
| Costs incurred (cumulative) Year 2 less Costs incurred (cumulative) Year 1 | ||
| So answer is option B. |
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