Final answer:
The gross profit to be recognized by Kiner, Inc. in 2014 using the percentage-of-completion method is $2,880,000. This is calculated by determining the percentage of the project completed in 2014, which is 60%, and then applying this percentage to the total contract value to get the revenue earned to date. Finally, the costs incurred to date are subtracted from the revenue earned to date to arrive at the gross profit.
Step-by-step explanation:
The percentage-of-completion method is a financial accounting method commonly used in long-term construction contracts, which recognizes revenues, expenses, and profit as a project progresses. To calculate the gross profit to be recognized in 2014 for Kiner, Inc., we first need to determine the percentage of the project that has been completed.
First, we calculate the percentage of completion:
Total costs incurred to date / (Total costs incurred to date + Estimated costs to complete) = $7,200,000 / ($7,200,000 + $4,800,000) = 0.6 or 60%
Next, we can calculate the revenue earned to date: Contract value x Percentage of completion = $16,800,000 x 60% = $10,080,000
Then, we calculate the gross profit by subtracting the costs incurred to date from the revenue earned to date: Revenue earned to date - Costs incurred to date = $10,080,000 - $7,200,000 = $2,880,000
Therefore, the gross profit to be recognized in 2014 is $2,880,000 (Option a).