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.