Boomtown Construction,Inc

question 55

Multiple Choice

Boomtown Construction,Inc.enters into a contract to build a new football stadium for the Maine Lobster's football team.The contract price is $6,000,000 and Boomtown estimates the total cost of the contract to be $5,000,000.During the first year of work on the contract,Boomtown completes 40% of the work on the stadium at a cost of $2,000,000.Boomtown receives $1,000,000 when it signed the contract and an additional $1,800,000 payment in the first year based on the degree of completion.Which of the following statements concerning the income to be recognized from the contract is/are correct?
I.Boomtown must include the $2,800,000 payment it received in gross income.
II.Because the work is not yet completed,Boomtown has the option of not recognizing any income from the contract.
III.Boomtown includes the $1,800,000 payment in gross income based on the degree of completion because it does not have a claim of right to the $1,000,000.
IV.Boomtown must include $2,400,000 in gross income.
​

• A)Only statement I is correct.
• B)Only statements I and IV are correct.
• C)Only statement III is correct.
• D)Only statement IV is correct.
• E)Only statements II and III are correct.

---

Definitions:

Operating Expenses

The costs associated with the day-to-day activities of a business, excluding costs directly tied to the production of goods or services, such as rent, utilities, and salaries.

Merchandising Company

A business that purchases finished goods for resale in order to earn a profit, without transforming these goods.

Wholesale Parts Company

A business entity that specializes in purchasing and selling automotive, machinery, or electronic parts in large quantities at lower prices, primarily to retailers or repair shops rather than end consumers.

Candy Store

A retail establishment specializing in the sale of candies, chocolates, and often other sorts of confections and sweets.