On 1 January 2015,Romulus Ltd signed a contract worth $21 000 000 to construct a light rail from A to B.The light rail was to be built over three 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: The project was completed in December 2017.
-Using the percentage of completion method,what profit would Romulus Ltd report in 2015?
A) $800 000
B) $2 000 000
C) $3 200 000
D) $1 300 000

Question

On 1 January 2015,Romulus Ltd signed a contract worth $21 000 000 to construct a light rail from A to B.The light rail was to be built over three 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:  The project was completed in December 2017.
-Using the percentage of completion method,what profit would Romulus Ltd report in 2015?
A) $800 000 
B) $2 000 000 
C) $3 200 000 
D) $1 300 000

Quizplus · Accepted Answer

To calculate profit using the percentage of completion method, we need to calculate the construction costs incurred and subtract them from the progress payments received:
- Construction costs incurred in 2015: $15 000 000 x 20% = $3 000 000
- Progress payments received in 2015: $7 000 000
- Profit in 2015: $7 000 000 - $3 000 000 = $4 000 000
Therefore, the profit Romulus Ltd would report in 2015 using the percentage of completion method is $3 200 000 (80% of $4 000 000). The correct answer is C.

On 1 January 2015,Romulus Ltd Signed a Contract Worth $21