Question
Sitwell Construction is constructing an office building for Bluth Company and uses the percentage-of completion method. The contract calls for progress billings and payments of
Sitwell Construction is constructing an office building for Bluth Company and uses the percentage-of completion method. The contract calls for progress billings and payments of $1,550,000 each quarter. The total contract price is $18,600,000 and Sitwell estimates total costs of $17,750,000. Sitwell estimates that the building will take 3 years to complete, and commences construction on January 2, 2021. The building was 30% complete at the end of 2021.
At December 31, 2022 Sitwell construction estimates that it is 75% complete with the building; however, the estimate of total costs to be incurred has risen to $18,000,000 due to unanticipated price increases. What is the total amount of construction expenses that Sitwell will recognize for the year ended December 31, 2022?
a. $13,500,000
b. $7,875,000
c. $7,987,500
d. $8,175,000
Please show all work! TY in advance :)
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