Please show calculations Indiana Co. began a construction project in 2011 that w

Question

Please show calculations

Indiana Co. began a construction project in 2011 that will provide it $150 million when it is completed in
2013. During 2011, Indiana incurred $36 million of costs and estimates an additional $84 million of costs to
complete the project. Suppose that, in 2012, Indiana incurred costs of $63.75 million and estimated an
additional $42.75 million in costs to complete the project. Using the percentage-of-completion method,
Indiana:
A. Recognized a $3.75 million loss on the project in 2012.
B. Recognized a $5.25 million gross profit on the project in 2012.
C. Recognized a $7.5 million gross profit on the project in 2012.
D. None of the above is correct.

Explanation / Answer

                           2011           2012           
Contract price      $150             $150

Actual costs
todate                 $36             $99.75

Estimated costs
to complete        $84              $42.75
Total costs        $120          $142.50
Gross Profit       $30               $7.50

Gross profit recognition = Actual costs x Gross profit / Total costs
For 2011 $36 x $30 / $120 = $9
Till 2012 $99.75 x $7.50 / $142.50 = $5.25

For 2012 Loss $5.25 - $9.00 = -$3.75

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