Brierton Company Enters a Contract at the Beginning of Year

question 71

Multiple Choice

Brierton Company enters a contract at the beginning of year 1 to build a new federal courthouse for a price of $16 million. Brierton estimates that total cost of the project will be $12 million, and will take four years to complete.
$$\begin{array} { | l | c | c | } \hline & \text { Costs incurred } & \begin{array} { c } \text { Payments from federal } \\\text { government }\end{array} \\\hline \text { Year 1 } & \$ 4 \mathrm { M } & \$ 2 \mathrm { M } \\\hline \text { Year 2 } & \$ 4 \mathrm { M } & \$ 2 \mathrm { M } \\\hline \text { Year 3 } & \$ 2 \mathrm { M } & \$ 6 \mathrm { M } \\\hline \text { Year 4 } & \$ 2 \mathrm { M } & \$ 6 \mathrm { M } \\\hline\end{array}$$
-If Brierton used cash accounting to account for this project, what would they have reported as profit (loss) in year 2?

• A) $ 0
• B) $ 1.333M
• C) $ (2M)
• D) $ (4M)

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