Rock Aerospace Company signed a contract on April 1, Year 4, to build a satellite for $28,000,000.Estimated costs for the contract are:
$\begin{array}{ll}
\text { Year 4 } & \$ 5,600,000 \
\text { Year } 5 & \$ 11,200,000 \
\text { Year 6 } & \$ 5,600,000
\end{array}$
$\text { Assume that actual costs incurred coincide with expectations. Cash collections of the contract price are as follows: }$
$\begin{array}{ll}
\text { Year } 4 & \$ 4,200,000 \
\text { Year } 5 & \$ 7,000,000 \
\text { Year 6 } & \$ 16,800,000
\end{array}$ Refer to the Rock Aerospace Company example.Income from the contract for Year 5 under the completed contract method is:
A)$1,000,000
B)$1,400,000
C)$2,800,000
D)$3,360,000
E)None of the above

Question

Quizplus · Accepted Answer

Under the completed contract method, all revenue and profit recognition is deferred until the contract is completed. Since the contract spans Year 4, Year 5, and Year 6, and the question asks about Year 5, no income from the contract would be recognized in Year 5 under the completed contract method. Income is recognized only upon completion of the contract, which is not until Year 6.

Rock Aerospace Company Signed a Contract on April 1, Year Year 4 $5,600,000 Year 5$11,200,000 Year 6 $5,600,000\begin{array}{ll}\text { Year 4 } & \$ 5,600,000 \\\text { Year } 5 & \$ 11,200,000 \\\text { Year 6 } & \$ 5,600,000\end{array} Year 4 Year 5 Year 6 ​$5,600,000$11,200,000$5,600,000​

Rock Aerospace Company Signed a Contract on April 1, Year $\begin{array}{ll}\text { Year 4 } & \$ 5,600,000 \\\text { Year } 5 & \$ 11,200,000 \\\text { Year 6 } & \$ 5,600,000\end{array}$