Albert Company agreed to build a bowling complex for Pins R Us for a price of $2,000,000. The project is expected to take three years to complete. Albert estimated that the total cost of the project would be $1,600,000. During the first year, construction costs amount to $600,000. If Albert uses the percentage of completion method, how much revenue will be recognized for the first year?

Question

Quizplus · Accepted Answer

Under the percentage of completion method, revenue is recognized based on the proportion of costs incurred to total estimated costs. In the first year, $600,000 of costs were incurred out of an estimated total cost of $1,600,000, which is 37.5% of the project. Therefore, 37.5% of the total contract price of $2,000,000 is recognized as revenue, which is $750,000.

Albert Company Agreed to Build a Bowling Complex for Pins