Question

# Indiana Co. began a construction project in 2021 with a contract price of \$165 million to...

Indiana Co. began a construction project in 2021 with a contract price of \$165 million to be received when the project is completed in 2023. During 2021, Indiana incurred \$30 million of costs and estimates an additional \$81 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.

Suppose that, in 2022, Indiana incurred additional costs of \$65 million and estimated an additional \$52 million in costs to complete the project. Indiana (Do not round your percentage calculated):

• Recognized \$2.96 million gross profit on the project in 2022.

• Recognized \$3.00 million loss on the project in 2022.

• Recognized \$5.96 million gross profit on the project in 2022.

• Recognized \$2.96 million loss on the project in 2022.

Recognized \$2.96 million loss on the project in 2022.

Explanation:

Step 1:

Percentage of completion = (Cost incurred till date / Total cost) x 100

2021 = (\$30milion / \$30 million + \$81 million) x 100

= (\$30 million / \$111 million) x 100

= 27.03%

2022 = {(\$65 million + \$30 million) / (\$65 million + \$30 million + \$52 million)} x 100

= {\$95 million / \$147 million} x 100

= 64.63%

Step 2:

Gross profit in 2022 = Contract Revenue - Total cost

= \$165 million - \$147 million

= \$18 million

Step 3:

Revenue till date of 2022 = \$18 miilion x 64.63% = \$11.63 million

Revenue recognised in 2021 = (\$165 million - \$111 million) x 27.03% = \$54 million x 27.03% = \$14.59 million

Net Loss to be reported in 2022 = \$14.59 million - \$11.63 million

= \$2.96 million.

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