Kehl Construction Corporation Contracted to Construct a Building for $1,500,000

question 8

Multiple Choice

Kehl Construction Corporation contracted to construct a building for $1,500,000. Construction began in 2010 and was completed in 2011.Data relating to the contract are summarized below: Kehl uses the percentage-of-completion method and the earnings approach as the basis for income recognition.For the years ended December 31, 2010, and 2011, respectively, Kehl should report gross profit of

• A)$270,000 and $170,000.
• B)$900,000 and $600,000.
• C)$300,000 and $140,000.
• D)$0 and $440,000.

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Definitions:

Residual Dividend Policy

A strategy where dividends are paid to shareholders after all project capital needs are met.

Debt-Equity Ratio

A measure of a company's financial leverage, calculated by dividing its total liabilities by shareholders' equity.

Capital Projects

Large, long-term investments undertaken by a company or government to create, expand, or improve physical assets such as buildings, infrastructure, or equipment.

Total Assets

The sum of all assets owned by a company, including both current and non-current assets, as reported on the balance sheet.