Highrise Constructions Ltd had a large three-year project with total revenue of $5 000 000 and estimated total costs of $4 200 000.The project was 25 per cent complete at the end of the first year,55 per cent complete at the end of the second year and 100 per cent complete at the end of the third year.Revenues and costs were as estimated.
- How much profit was earned during the second year if the percentage of completion method was used?
A) $200 000
B) $240 000
C) $440 000
D) $1 500 000

Question

Quizplus · Accepted Answer

Using the percentage of completion method, revenue and expenses are recognized in proportion to the percentage of work completed. Therefore, the revenue and cost recognized during the second year were:

Revenue: $5 000 000 x 55% = $2 750 000
Costs: $4 200 000 x 55% = $2 310 000

Profit: $2 750 000 - $2 310 000 = $440 000

Therefore, the correct answer is B.

Highrise Constructions Ltd Had a Large Three-Year Project with Total