F & R Construction,Inc.has consistently used the percentage-of-completion method of recognizing revenue.Last year F & R started work on a $5,000,000 construction contract,which was completed this year.The accounting records disclosed the following data for last year:

How much revenue should F & R have recognized on this contract last year?
A)$1,500,000
B)$1,700,000
C)$1,100,000
D)$400,000

Question

F & R Construction,Inc.has consistently used the percentage-of-completion method of recognizing revenue.Last year F & R started work on a $5,000,000 construction contract,which was completed this year.The accounting records disclosed the following data for last year:

How much revenue should F & R have recognized on this contract last year?

How much revenue should F & R have recognized on this contract last year?
A)$1,500,000 
B)$1,700,000 
C)$1,100,000 
D)$400,000

Quizplus · Accepted Answer

To calculate the revenue that F & R should have recognized last year, we use the percentage-of-completion method. This method recognizes revenue over the period of construction based on the percentage of work completed.

The formula to calculate the percentage of completion is:
Percentage of completion = Costs incurred to date / Total estimated costs

For last year, the costs incurred were $3,000,000 and the total estimated costs were $4,000,000, which means the percentage of completion was 75% (3,000,000/4,000,000).

Therefore, the revenue that F & R should have recognized last year is:
Total contract price x Percentage of completion = $5,000,000 x 75% = $3,750,000

However, since the question is asking for the revenue recognized only in the last year, we need to subtract the revenue recognized in the previous year. According to the data given, F & R recognized $2,050,000 in revenue in the previous year.

Therefore, the revenue that F & R should have recognized on this contract last year is:
$3,750,000 - $2,050,000 = $1,700,000

Thus, the correct answer is B, $1,700,000.