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.
-In 2019, Indiana incurred additional costs of $58.5 million and estimated an additional $40.5 million in costs to complete the project. Indiana:
A) Recognized $15 million gross profit on the project in 2019.
B) Recognized $13.5 million gross profit on the project in 2019.
C) Recognized $6 million gross profit on the project in 2019.
D) Recognized $1.5 million gross profit on the project in 2019.

Question

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. 
-In 2019, Indiana incurred additional costs of $58.5 million and estimated an additional $40.5 million in costs to complete the project. Indiana:
A) Recognized $15 million gross profit on the project in 2019.
B) Recognized $13.5 million gross profit on the project in 2019.
C) Recognized $6 million gross profit on the project in 2019.
D) Recognized $1.5 million gross profit on the project in 2019.

Quizplus · Accepted Answer

The project is 70% complete after 2019 (i.e., $94.5 million costs to date / $135 million estimated total costs). The estimated gross profit is now $15 million (i.e., $150 million - $135 million), so gross profit to date is $10.5 million (70% × $15 million). $9 million was recognized in 2018, per prior question, so $1.5 million more is recognized in 2019.