CFA Practice Question

There are 534 practice questions for this study session.

CFA Practice Question

A company entered into a three-year construction project with a total contract price of $5.3 million and an expected total cost of $4.4 million. The following table provides cash flow information relating to the contract (all figures in $):

Item | Year 1 | Year 2 | Year 3
Costs incurred and paid | 600,000 | 3,000,000 | 800,000
Amounts billed and payments received | 1,200,000 | 2,800,000 | 1,300,000

If the company uses the percentage-of-completion method, the amount of revenue (in $) recognized in Year 2 will be closest to ______.
A. 2,901,333
B. 3,472,666
C. 3,616,636
Explanation: The revenue reported is equal to the percentage of the contract that is completed in that period, where percentage completion is based on costs. In Year 2, the percent completed is 3,000,000/4,400,000 = 68.2%, resulting in 68.2% x 5,300,000 = 3,616,636 revenue being recognized.

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