-Karr Construction built a levee for the state of Mississippi over a three-year period. The contracted price for the levee was $3,000,000. The costs incurred by Karr and the payments from the state over the three year period are as follows:
$\begin{array}{|l|c|c|c|r|}
\hline & \mathbf{2 0 1 7} & \mathbf{2 0 1 8} & \mathbf{2 0 1 9} & \text { Total } \
\hline \begin{array}{l}
\text { Costs incurred by } \
\text { Karr }
\end{array} & \$ 600,000 & \$ 800,000 & \$ 200,000 & \$ 1,600,000 \
\hline \begin{array}{l}
\text { Payments from } \
\text { Mississippi }
\end{array} & \$ 1,200,000 & \$ 800,000 & \$ 1,000,000 & \$ 3,000,000 \
\hline
\end{array}$
If revenue is recognized in proportion to the costs incurred by Karr, how much net income is reported in 2019?
A)$1,200,000
B)$800,000
C)$600,000
D)$175,000

Question

-Karr Construction built a levee for the state of Mississippi over a three-year period. The contracted price for the levee was $3,000,000. The costs incurred by Karr and the payments from the state over the three year period are as follows:
$\begin{array}{|l|c|c|c|r|}
\hline & \mathbf{2 0 1 7} & \mathbf{2 0 1 8} & \mathbf{2 0 1 9} & \text { Total } \
\hline \begin{array}{l}
\text { Costs incurred by } \
\text { Karr }
\end{array} & \$ 600,000 & \$ 800,000 & \$ 200,000 & \$ 1,600,000 \
\hline \begin{array}{l}
\text { Payments from } \
\text { Mississippi }
\end{array} & \$ 1,200,000 & \$ 800,000 & \$ 1,000,000 & \$ 3,000,000 \
\hline
\end{array}$
If revenue is recognized in proportion to the costs incurred by Karr, how much net income is reported in 2019?
A)$1,200,000 
B)$800,000 
C)$600,000 
D)$175,000

Quizplus · Accepted Answer

To calculate the net income reported in 2019, we first determine the revenue recognized each year based on the proportion of costs incurred. The total costs incurred over the three years are $1,600,000, and the total contracted price is $3,000,000. Thus, the proportion of costs incurred each year to total costs gives us the revenue recognized for that year.For 2019, the costs incurred are $200,000. The proportion of costs incurred in 2019 to the total costs is $200,000 / $1,600,000 = 1/8. Therefore, the revenue recognized in 2019 is 1/8 of the total contracted price, which is $3,000,000 * 1/8 = $375,000.To find the net income for 2019, subtract the costs incurred in 2019 ($200,000) from the revenue recognized in 2019 ($375,000). Thus, the net income reported in 2019 is $375,000 - $200,000 = $175,000.

-Karr Construction Built a Levee for the State of Mississippi