Question - Brown Construction Company uses the percentage of completion method for long term construction contracts. A specific job was begun in 2011 and completed in 2013. The contract price was $1,400,000 and cost information as of each year end is given below
End of year estimated cost to complete 2011 $400,000 2012 $200,000 2013 $0
Annual cost incurred 2011 $400,000 2012 $400,000 2013 $120,000
Assuming Brown correctly recorded gross profit in 2011, how much gross profit should the company record in 2012?
a- $0
b- $20,000
c- $300,000
d- $320,000
Please explain why each answer is wrong and why the correct one is right.