Karr Construction Built a Levee for the State of Mississippi

question 85

Essay

Karr Construction built a levee for the state of Mississippi over a three-year period. The contracted price for the levee was $1,200,000. The costs incurred by Karr and the payments from the state over the three year period are as follows:
If revenue is recognized in proportion to the costs incurred by Karr, how much net income is reported in 2011?
a. $600,000
b. $400,000
c. $300,000
d. $150,000

---

Definitions:

Closing Process

The closing process involves finalizing accounts at the end of an accounting period, transferring net income and dividend information to retained earnings, and preparing the accounts for the next period.

Owner's Capital

The total value of assets contributed by the owner of a business plus the retained earnings.

Owner's Drawings

Withdrawals of a business's cash or other assets by the owner for personal use.

Expense Accounts

Accounts used to record business expenses, which reduce net income in the profit and loss statement.