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Answer: €750,000.
The correct answer is **C** because the standard for revenue recognition under long-term contracts (performance obligations satisfied over time) requires measuring progress toward completing the obligation. In this case, the company has incurred 25% of the total expected costs (€500,000 / €2,000,000), so it recognizes 25% of the total revenue (€3,000,000 * 25% = €750,000) in Year 1. This aligns with the input method, where revenue is recognized based on the proportion of costs incurred. Options A and B are incorrect as they do not accurately apply the standard's requirements for revenue recognition in such scenarios.
Author: LeetQuiz Editorial Team
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A company entered into a 5-year construction contract with a total sales price of €3,000,000. The estimated total costs are €2,000,000, and the company incurred €500,000 in actual costs during the first year. The company has extensive experience with similar contracts, and costs incurred provide an appropriate measure of progress toward completing the contract. Assuming it is highly probable that revenue will not be subsequently reversed, the revenue recognized under the contract in Year 1 is most likely:
A
€500,000.
B
€600,000.
C
€750,000.
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