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Company A signed a fixed-price $6,500,000 contract to construct a building. At the end of Year...

Company A signed a fixed-price $6,500,000 contract to construct a building. At the end of Year 1,Company A had incurred $1,000,000 in total costs, and expected to incur $3,500,000 in additional costs to complete the building. By the end of Year 2, Company A had incurred total-costs-to-date of $3,000,000 and expected to incur $1,500,000 in cost to complete the building. How much profit should Company A recognize in Year 2 under the cost-to-cost method?

a. $125,000

b. $250,000

c. $375,000

d. $500,000

e. None of the above

Please help to show the working for better understanding.

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