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Red & Blue Corporation signs a contract at the beginning of 2020 to build a road...

Red & Blue Corporation signs a contract at the beginning of 2020 to build a road for the government.  Construction will take four years.  The following information is available on the contract.  

Total revenue =           $ 15,000,000

Total expected cost =       $ 12,000,000

Cost incurred during 2020 = $   4,500,000

If Red & Blue Corporation uses the prorata method, then how much revenue will the company recognize from the project for the year 2020?

a.

None
b.

$3,750,000
c.

$4,750,000
d.

$5,625,000
Business   Accounting   
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Answer #1

Option D $5625000  Revenue company will recognize from the project for the year 2020 as computed below.

Particulars $
Contract Price (a) 15000000
Less: Estimated Cost
    Costs incurred to date 4500000
    Estimated costs to complete 7500000
Estimated total costs (b) 12000000
% of completion 37.50%
(Cost incurred till date / Total costs)
Construction Revenue to be recognised (Contract Price * % of completion) 5625000
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