Camelia Company is a large commercial real estate contractor that reports its income by the percentage of completion method.In 2014,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 2014,the company incurred $150,000 in costs under the contract.In 2015,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 must recognize income based on the percentage of completion method. In 2014, the costs incurred were $150,000 out of an estimated $600,000 total, which is 25% of the project. Therefore, 25% of the total contract price ($900,000) is $225,000. The income recognized is $225,000 minus the costs incurred ($150,000), resulting in $75,000 of income for 2014.

Camelia Company Is a Large Commercial Real Estate Contractor That