Southview Construction Company enters into a contract to build a 30 mile cross country ski trail for $36,000 in the current year. Southview estimates the cost of building the trail to be $12,000. During the first year, Southview completes 10 miles of trail at a cost of $5,000. Southview receives $13,000 in advanced payments on the contract price in the first year. How much gross income must Southview recognize from the construction project in the first year?
A)$- 0 -
B)$5,000
C)$12,000
D)$13,000
E)$15,000

Question

Quizplus · Accepted Answer

To determine the gross income, we need to calculate the total revenue earned in the first year, which is the sum of the revenue earned from work completed (10 miles) and the revenue earned from advanced payments.

Revenue earned from work completed = 10/30 x $36,000 = $12,000 
Revenue earned from advanced payments = $13,000

Total revenue earned in the first year = $12,000 + $13,000 = $25,000

To determine the gross income, we need to subtract the cost of work completed from the total revenue earned.

Cost of work completed = $5,000 
Gross income = Total revenue earned - Cost of work completed = $25,000 - $5,000 = $20,000

Therefore, Southview must recognize $20,000 in gross income from the construction project in the first year. The correct answer is E.

Southview Construction Company Enters into a Contract to Build a 30