Highrise Constructions Ltd had a large 3-year project with total revenue of $5 000 000 and estimated total costs of $4 200 000. The project was 25% complete at the end of the first year, 55% complete at the end of the second year, and 100% complete at the end of the third year. Revenues and costs were as estimated.
-What 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

The percentage of completion method recognizes revenue and expenses based on the percentage of the project that is complete. At the end of the second year, the project was 55% complete. Therefore, the revenue recognized during the second year is 55% of $5,000,000 = $2,750,000. The costs incurred during the second year are 55% of $4,200,000 = $2,310,000. The profit earned during the second year is $2,750,000 - $2,310,000 = $440,000.

Highrise Constructions Ltd Had a Large 3-Year Project with Total