In 20x1, ABC Co. was contracted to build a railroad. The contract price is equal to the construction costs incurred plus 20% thereof. However, if the project is completed within 4 years, ABC will receive an additional payment of P200,000. Information on the project is shown below: 20x1 20x2 Costs incurred to date Estimated costs to complete 2,400,000 3,600,000 4,575,000 1,525,000 20x3 6,125,000 125,000 In 20x1 and 20x2, it was not highly probable that the project will be completed on time. However, in 20x3, ABC assessed that the project will be completed earlier than originally expected and thus it is now highly probable that the incentive payment will be received.
In 20x1, ABC Co. was contracted to build a railroad. The contract price is equal to the construction costs incurred plus 20% thereof. However, if the project is completed within 4 years, ABC will receive an additional payment of P200,000. Information on the project is shown below: 20x1 20x2 Costs incurred to date Estimated costs to complete 2,400,000 3,600,000 4,575,000 1,525,000 20x3 6,125,000 125,000 In 20x1 and 20x2, it was not highly probable that the project will be completed on time. However, in 20x3, ABC assessed that the project will be completed earlier than originally expected and thus it is now highly probable that the incentive payment will be received.
Chapter3: Income Sources
Section: Chapter Questions
Problem 88P
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Questions:
1. How much revenue is recognized in the contract in 20x3?
2. How much profit is recognized in the contract in 20x3?
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