Use the following information for problems.
Carbon Corporation had a $2,000,000 contract to build a small hospital with total costs estimated at $1,600,000. It received the following payments and incurred the following expenses over the three-year contract period:
$$\begin{array} { c c c }
\text { Year } & \underline { \text { Payments } } & \text { Expenses } \
1 & \$ 400,000 & \$ 300,000 \
2 & \$ 1,200,000 & \$ 900,000 \
3& \$ 400,000 & \$ 550,000
\end{array}$$
-Under the competed contract method of accounting, how much profit (loss) should Carbon recognize in years 1, 2, and 3 respectively?
A) $0, $0, $250,000
B) $0, $0, $400,000
C) $100,000, $300,000, ($150,000)
D) $75,000, $225,000, ($50,000)

Question

Use the following information for problems.
 Carbon Corporation had a $2,000,000 contract to build a small hospital with total costs estimated at $1,600,000. It received the following payments and incurred the following expenses over the three-year contract period:
 $$\begin{array} { c c c } 
\text { Year } & \underline { \text { Payments } } & \text { Expenses } \
1 & \$ 400,000 & \$ 300,000 \
2 & \$ 1,200,000 & \$ 900,000 \
3& \$ 400,000 & \$ 550,000
\end{array}$$
-Under the competed contract method of accounting, how much profit (loss) should Carbon recognize in years 1, 2, and 3 respectively?
A) $0, $0, $250,000
B) $0, $0, $400,000
C) $100,000, $300,000, ($150,000)
D) $75,000, $225,000, ($50,000)

Quizplus · Accepted Answer

Under the completed contract method of accounting, revenue and profit are recognized only when the contract is completed. Since the contract spans three years, no profit or loss is recognized in years 1 and 2. In year 3, when the contract is completed, the total profit is recognized. The total contract value is $2,000,000 and the total costs are $1,600,000, resulting in a total profit of $400,000. However, the question asks for the profit recognized in each year, which under the completed contract method would be $0 in years 1 and 2, and the total profit of $400,000 in year 3, which is not an option provided. Given the options, the closest match to the expected outcome under the completed contract method would be recognizing no profit in years 1 and 2, and recognizing profit in year 3. However, none of the options correctly reflects the total profit of $400,000 in year 3 as per the completed contract method's rules. There seems to be a misunderstanding in my explanation regarding the available choices, as they do not align with the completed contract method's expected outcome of recognizing the total profit of $400,000 in the final year.

Use the Following Information for Problems -Under the Competed Contract Method of Accounting, How Much Profit