Final answer:
Robertson Construction would recognize $4,500,000 in revenue in 2018. This is calculated by deducting the cumulative recognized revenue from the fixed contract price. The percentage of completion method indicates that the revenue recognized in 2018 is $1,500,000 ($12,000,000 contract price - $10,500,000 cumulative recognized revenue).
Step-by-step explanation:
In 2018, Robertson Construction applies the percentage of completion method to recognize revenue, evaluating both costs incurred and the remaining costs to complete the tunnel construction project. The costs incurred in 2018 amount to $2,500,000, and there are no additional costs anticipated for completion. Summing this with the cumulative costs from previous years ($3,000,000 in 2016 and $5,000,000 in 2017), the total incurred costs stand at $10,500,000 by the end of 2018.
To determine the revenue recognized in 2018, this total incurred cost is subtracted from the fixed contract price of $12,000,000. Therefore, the revenue recognized in 2018 would be $12,000,000 - $10,500,000, which equals $1,500,000. This reflects the proportion of the project completed by the end of 2018 in relation to the total contract value.
The percentage of completion method ensures that revenue is recognized based on the progress made towards fulfilling the contract, offering a more accurate representation of the company's financial performance over time.