Camelia Company is a large commercial real estate contractor that reports its income by the percentage of completion method.In 2015,the company entered into a contract to construct a building for $900,000.Camelia estimated that the cost of constructing the building would be $600,000.In 2015,the company incurred $150,000 in costs under the contract.In 2016,the company incurred an additional $500,000 in costs to complete the contract.The company's marginal tax rate in all years was 35%.

Question

Quizplus · Accepted Answer

Camelia Company should recognize income for the portion of the contract completed in 2015 using the percentage of completion method. To calculate the percentage of completion, the company needs to divide the costs incurred in 2015 ($150,000) by the total estimated costs ($600,000), which equals 0.25 or 25%.

Then, it can calculate the revenue recognized by multiplying the total contract price ($900,000) by the percentage of completion (25%), which equals $225,000.

Finally, the company should subtract the costs incurred in 2015 ($150,000) from the revenue recognized ($225,000) to get the income recognized in 2015, which equals $75,000. Therefore, Choice C is the correct answer.

Camelia Company Is a Large Commercial Real Estate Contractor That