Question - Shepard Construction Company has consistently used the percentage-of- completion method. On January 10, 2011, Shepard began work on a $3,000,000 construction contract. At the inception date, the estimated cost of construction was $2,250,000. The following data relate to the progress of the contract:
Gross profit recognized at December 31, 2011 .......... $ 300,000
Costs incurred Jan. 10, 2011, through Dec. 31, 2012 ... 1,800,000
Estimated cost to complete at December 31, 2012 ....... 600,000
How much gross profit should Shepard recognize for the year ended December 31, 2012?
A) $150,000
B) $262,500
C) $300,000
D) $450,000
Please explain why each answer is wrong and why one is correct.