Use the information below to answer the following questions:
On 1 January 2010, Romulus Ltd signed a contract worth $21 000 000 to construct a light rail from here to there. The light rail was to be built over 3 years, with progress payments of $7 000 000 to be made at the end of each year. Estimated costs were $15 000 000 and the following costs incurred and paid by Romulus Ltd were in accordance with estimates and represented the percentage completed in each year:
$\begin{array}{llcc}
& \text {\$ } \
\text {2010 } &\$ 8000000 \
\text { 2011 } &\$ 5000000 \
\text { 2012} &\$ 2000000 \
\text { } &\
\text { } &\
\end{array}$

The project was completed in December 2012.
-Using the percentage of completion method,what profit would Romulus Ltd report in 2011?
A) $2 000 000
B) $3,200 000
C) $6 000 000
D) $7 000 000.

Question

Use the information below to answer the following questions:
On 1 January 2010, Romulus Ltd signed a contract worth $21 000 000 to construct a light rail from here to there. The light rail was to be built over 3 years, with progress payments of $7 000 000 to be made at the end of each year. Estimated costs were $15 000 000 and the following costs incurred and paid by Romulus Ltd were in accordance with estimates and represented the percentage completed in each year:
$\begin{array}{llcc}
 & \text {\$  }   \
 \text {2010  } &\$ 8000000 \
 \text { 2011 } &\$ 5000000 \
 \text { 2012} &\$ 2000000 \
 \text {  } &\
 \text {  } &\
\end{array}$

The project was completed in December 2012.
-Using the percentage of completion method,what profit would Romulus Ltd report in 2011?
A) $2 000 000
B) $3,200 000
C) $6 000 000
D) $7 000 000.

Quizplus · Accepted Answer

In 2011, the percentage of completion is calculated as (8,000,000 + 5,000,000) / 15,000,000 = 86.67%. The revenue recognized by the end of 2011 is 86.67% of $21,000,000, which is $18,200,000. The costs incurred by the end of 2011 are $13,000,000. Therefore, the profit recognized by the end of 2011 is $18,200,000 - $13,000,000 = $5,200,000. The profit for 2011 alone is $5,200,000 - $3,200,000 (profit recognized in 2010) = $2,000,000.

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