Question

Indiana Co. began a construction project in 2021 with a contract price of $164 million to be received when the project is completed in 2023. During 2021, Indiana incurred $30 million of costs and estimates an additional $83 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 $50 million and estimated an additional $37 million in costs to complete the project. Indiana (Do not round your percentage calculated):

A.) Recognized $47.00 million gross profit on the project in 2022.

B.) Recognized $18.60 million gross profit on the project in 2022.

C.) Recognized $9.00 million gross profit on the project in 2022.

D.) Recognized $45.50 million gross profit on the project in 2022.

Answer 1

In 2021, they have expended $30 million and recognized revenue of 30/(30+83)% of $164 million; that is, $43.5392 million.

In 2022, they have expended additional $50 million, and recognized a revenue of [((30+50)/(30+50+37)% of $164 million) - $43.5392 million] = $112.1367 million - $43.5392 million = $68.5969 million; leading to a gross profit of $18.5969 million [being $68.5969 - $50 million]. This can be rounded up to $18.60 million.

Therefore the correct option is B) Recognized $18.60 million gross profit on the project in 2022.

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