In year 1, Northern Construction agrees to build a fire station that will be completed in year 2.Construction starts in year 1.The station will have costs of $2,000,000 in year 1 and $2,000,000 in year 2.Northern receives payment for the station of $5,000,000 in advance, in year 1.If Northern uses the completed contract method, what net profit is recognized by Northern in each year?
$\text { Year } 1 \quad \text { Year } 2$
A)$\$ 0 \quad \$ 1,000,000$
B)$\$ 1,000,000 \quad \$ 0$
C)$\$ 3,000,000 \quad(\$ 2,000,000)$
D)$\$ 500,000 \quad \$ 500,000$
E)$\$ 250,000 \quad \$ 750,000$

Question

In year 1, Northern Construction agrees to build a fire station that will be completed in year 2.Construction starts in year 1.The station will have costs of $2,000,000 in year 1 and $2,000,000 in year 2.Northern receives payment for the station of $5,000,000 in advance, in year 1.If Northern uses the completed contract method, what net profit is recognized by Northern in each year? 
$\text { Year } 1 \quad \text { Year } 2$
A)$\$ 0 \quad \$ 1,000,000$
B)$\$ 1,000,000 \quad \$ 0$
C)$\$ 3,000,000 \quad(\$ 2,000,000)$
D)$\$ 500,000 \quad \$ 500,000$
E)$\$ 250,000 \quad \$ 750,000$

Quizplus · Accepted Answer

Under the completed contract method, revenue and profit are recognized only when the contract is completed. Since the construction is completed in year 2, no profit is recognized in year 1, and the entire profit of $1,000,000 ($5,000,000 payment - $4,000,000 total costs) is recognized in year 2.

In Year 1, Northern Construction Agrees to Build a Fire Year 1 Year 2\text { Year } 1 \quad \text { Year } 2 Year 1 Year 2

In Year 1, Northern Construction Agrees to Build a Fire $\text { Year } 1 \quad \text { Year } 2$