Indiana Co. began a construction project in 2018 with a contract price of $150 million to be received when the project is completed in 2020. During 2018, Indiana incurred $36 million of costs and estimates an additional $84 million of costs to complete the project. Indiana recognizes revenue over time and for this project recognizes revenue over time according to the percentage of the project that has been completed. Indiana:
A) Recognized no gross profit or loss on the project in 2018.
B) Recognized $6 million loss on the project in 2018.
C) Recognized $9 million gross profit on the project in 2018.
D) Recognized $36 million loss on the project in 2018.

Question

Quizplus · Accepted Answer

The project is expected to make a gross profit of $30 million (i.e., $150 million - $36 million - $84 million) and the % completed is 30% (i.e., $36 million/$120 million). Therefore, 30% × $30 million = $9 million.