In year 1, Southern Construction agrees to construct a school building for $12,000,000, receiving payments for the work of $6,000,000 in both year 1 and year 2.Southern estimates that the costs will be $4,000,000 in Year 1 and $6,000,000 in Year 2.If Southern uses the percentage-of-completion method (based on total costs), what amount of profit is recognized in each year of the contract?
$\text { Year } 1 \quad \text { Year } 2$
A)$\$ 0 \quad \$ 2,000,000$
B)$\$ 2,000,000 \quad \$ 0$
C)$\$ 1,000,000 \quad \$ 1,000,000$
D)$\$ 800,000 \quad \$ 1,200,000$
E)$\$ 2,000,000 \quad \$ 1,000,000$

Question

In year 1, Southern Construction agrees to construct a school building for $12,000,000, receiving payments for the work of $6,000,000 in both year 1 and year 2.Southern estimates that the costs will be $4,000,000 in Year 1 and $6,000,000 in Year 2.If Southern uses the percentage-of-completion method (based on total costs), what amount of profit is recognized in each year of the contract? 
$\text { Year } 1 \quad \text { Year } 2$
A)$\$ 0 \quad \$ 2,000,000$
B)$\$ 2,000,000 \quad \$ 0$
C)$\$ 1,000,000 \quad \$ 1,000,000$
D)$\$ 800,000 \quad \$ 1,200,000$
E)$\$ 2,000,000 \quad \$ 1,000,000$

Quizplus · Accepted Answer

The total estimated cost is $10,000,000 ($4,000,000 in Year 1 + $6,000,000 in Year 2), and the contract is for $12,000,000, indicating a total estimated profit of $2,000,000. In Year 1, the percentage of completion is based on costs, so $4,000,000 / $10,000,000 = 40%. Therefore, 40% of the total profit ($2,000,000) is recognized in Year 1, which is $800,000. In Year 2, the remaining 60% of the work is completed, so 60% of the total profit is recognized, which is $1,200,000.

In Year 1, Southern Construction Agrees to Construct a School Year 1 Year 2\text { Year } 1 \quad \text { Year } 2 Year 1 Year 2

In Year 1, Southern Construction Agrees to Construct a School $\text { Year } 1 \quad \text { Year } 2$