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Year-end information related to the contract is as follows:
Year1 Year2 Year3
Estimated total cost $2,000,000 $2,000,000 $2,000,000
Cost incurred 700,000 900,000 400,000
Billings 800,000 1,200,000 1,000,000
Collections 600,000 1,200,000 1,200,000
Under the percentage-of-completion method, the gross profit to be recognized in Year1 is
A. $(100,000)
B. $100,000
C. $200,000
D. $350,000
Total Gross Profit (GP) = (Total Contract Price $3,000,000 - Cost $2,000,000) = $1,000,000
Cost incurred till year1 = ($700,000/$2,000,000 x100)=35%
therefore, GP for year1 = $1,000,000 x35% = $350,000 <or>
($700,000/$2,000,000) x ($3,000,000-$2,000,000) = $350,000
Answer D: $350,000
Answer d) $350000- % of completio =7/20=0.35, contract value =$3000000
Total GP==1000000, GP for the1 st year =100000*0.35= $350000
the gross profit to be recognized in Year1=
[(total expected profit × percentage complete)-profit previously recognized].
[(1,000,000 ×35%) -0] =350,000 answer is D
Total expected profit = contract price - the estimated total cost
=3,000,000 -2,000,000 =1,000,000.
percentage complete = the cost incurred / the estimated total cost
=700,000 /2,000,000 =35%
profit previously recognized = this is first year of the project so there is no profit previously recognized.
Option D. $350,000 is the answer.
Answer: D. $350,000
Contract Price: 3,000,000 Yr1 - Progress =700,000/2,000,000 35% Revenue Year1 =3,000,000 x35% 1,050,000 Cost Incurred 700,000 Gross Profit Year1 350,000
