Chiatti Company enters a contract at the beginning of year 1 to build a new federal courthouse for a price of $16 million. Chiatti estimates that total cost of the project will be $12 million and will take four years to complete.

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

b) If Chiatti used cash accounting to account for this project, what would they have reported as profit (loss) in year 2?  

Transcribed Image Text:

Year 1 Year 2 Year 3 Year 4 Costs incurred $4 million $4 million $2 million $2 million Payments from federal government $2 million $2 million $6 million $6 million Year 1 Year 2 Year 3 Year 4 Costs incurred $4 million $4 million $2 million $2 million Payments from federal government $2 million $2 million $6 million $6 million

Answer rating: 100% (QA)

a Profit reported under percentageofcompletion method in Year 2 would be 133 million b Loss reported ... View the full answer