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342 Chapter 7 12. Entity X, a construction firm, enters into a contract to build water treatment facility for a customer. The contract price total construction costs plus 15% thereof. However, the variable fee increases to 20% if the project is completed within three years. Entity X incurs the following costs: Year 1 Year 2 Year 3 Costs incurred each year 10,500,000 14,300,000 6,000,000 Estimated costs to complete 19,500,000 6,200,000 In Year 1, it is not highly probable that the additional fee will be received. However, after a change in circumstances in Year 2, it is now highly probable that the additional fee will be received Entity X uses the percentage of completion method based on costs How much profit is recognized in Year 3? a. 835,000 c. 1,200,000 b. 986,000 d. 1,375,000 13. In 20x1, Dusk Co. started work on a construction contract with a fixed price of P4,000,000. Dusk Co. uses the percentage of completion method and measures its progress based on assessment of the physical completion of the project. The estimated total contract costs were P3,000,000. Information on the project is as follows: 20x1 20x2 Costs incurred per year 1,425,000 1,125,000 Physical completion of project 35% 90% How much are the revenue and cost of construction recognized in 20x2? Revenue Cost of construction a. 2,280,000 1,730,000 b. 2,220,000 1,560,000 C. 2,200,000 1,650,000 d. 2,090,000 1,350,000