Reference no: EM132779882

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 ?200,000.

Information on the project is shown below:

Costs incurred to date 20x1 - 2,400,000 20x2 - 4,575,000 20x3 - 6,125,000
Estimated costs to complete 20x1 - 3,600,000 20x2 - 1,525,000 20x3 - 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 project will be completed earlier than originally expected and thus it is now highly probable that the incentive payment will be received.

Problem 1: How much revenue is recognized on the contract in 20x3?

a. 2,595,000
b. 2,610,000
c. 2,056,000
d. 2,022,000