Camelia Company is a large commercial real estate contractor that reports its income by the percentage of completion method.In 2016,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 2016,the company incurred $150,000 in costs under the contract.In 2017,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

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Under the percentage of completion method, income recognized is based on the percentage of the total costs incurred for the project. In this case, the estimated total cost of the project is $600,000, and in 2016 Camelia incurred $150,000 in costs. Therefore, the percentage of completion for 2016 is 25% ($150,000/$600,000), and the income recognized in 2016 is 25% of the total contract price ($900,000) which equals to $225,000. However, since this income is for 2016, the company must adjust it for the tax rate of 35%, resulting in $75,000 in income recognized for that year. The remaining income of $225,000 will be recognized in 2017 when the project is completed.

Camelia Company Is a Large Commercial Real Estate Contractor That