Brierton Company Enters a Contract at the Beginning of Year

question 82

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 percentage-of-completion method to account for this project, what would they have reported as profit in year 2?

• A) $ 0
• B) $ 1.333M
• C) $ 1.5M
• D) $ 0.667M

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Definitions:

Pairs of Socks

Multiple sets of soft foot garments, each set consisting of two items, typically worn for warmth, comfort, or hygiene reasons.

Opportunity Cost

The expense incurred by not choosing the second-best option available during decision-making.

United States

A country in North America consisting of 50 states and a federal district, known for its large economy and diverse population.

Rebuilding

The process of restoring or reconstructing infrastructure, homes, or communities after damage or destruction.