F & R Construction,Inc.has consistently used the percentage-of-completion method of recognizing revenue.Last year F & R started work on a $5,000,000 construction contract,which was completed this year.The accounting records disclosed the following data for last year: How much revenue should F & R have recognized on this contract last year?
A) $1,500,000
B) $1,700,000
C) $1,100,000
D) $400,000

Question

F & R Construction,Inc.has consistently used the percentage-of-completion method of recognizing revenue.Last year F & R started work on a $5,000,000 construction contract,which was completed this year.The accounting records disclosed the following data for last year:  How much revenue should F & R have recognized on this contract last year?
A) $1,500,000 
B) $1,700,000 
C) $1,100,000 
D) $400,000

Quizplus · Accepted Answer

According to the information provided, the total contract value is $5,000,000 and costs incurred to date are $2,800,000. Therefore, the percentage of completion can be calculated as ($2,800,000 ÷ $5,000,000) × 100% = 56%. Since the contract was completed in the following year, the revenue recognized last year would be equal to the percentage of completion multiplied by the total contract value, which is ($5,000,000 × 56%) = $2,800,000. However, since this question is asking for revenue only, we need to subtract the costs incurred to date, which is $2,800,000 - $1,100,000 = $1,700,000. Therefore, the correct answer is B.