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12. Entity X, a construction firm, enters into a contract to build a water treatment facility for a customer. The contract price is total
12. Entity X, a construction firm, enters into a contract to build a water treatment facility for a customer. The contract price is total construction costs plus 15% thereof. However, the variable fee increases to 20% if the project is completed within three years. Entity X incurs the following costs: Year 1 Costs incurred each year 10,500,000 Estimated costs to complete 19,500,000 Year 2 14,300,000 Year 3 6,000,000 6,200,000 don me tt Dar 1458 CUST In Year 1, it is not highly probable that the additional fee will be received. However, after a change in circumstances in Year 2, it is now highly probable that the additional fee will be received. Entity X uses the percentage of completion method based on costs. How much profit is recognized in Year 3? a. 835,000 b. 986,000 c. 1,200,000 d. 1,375,000 13. In 20x1, Dusk Co. started work on a construction contract with a fixed price of P4,000,000. Dusk Co. uses the percentage of completion method and measures its progress based on assessment of the physical completion of the project. The estimated total contract costs were P3,000,000. Information on the project is as follows: Costs incurred per year Physical completion of project 20x1 1,425,000 20x2 1,125,000 35% 90% How much are the revenue and cost of construction recognized in 20x2? Revenue a. 2,280,000 b. 2,220,000 c. 2,200,000 d. 2,090,000 Cost of construction 1,730,000 1,560,000 1,650,000 1,350,000
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