Question

In 2018, Omega Construction began work on a contract with a price of $850,000 and estimated costs of $595,000. Data for each year of the contract are as follows:

​

​	2018	2019	2020
Costs incurred during the year	$238,000	$319,600	$105,000
Estimated costs to complete	357,000	139,400	-0-
Partial billings	260,000	210,000	380,000
Collections	240,000	200,000	410,000

Assuming the performance obligation is satisfied over time, what would be the gross profit in 2018?

Group of answer choices

$255,000

$425,000

$260,000

$102,000

Answer 1

Answer:

Gross profit Recognised in year 2018 is $102000.

Explanation:

percentage of completion =

(Cost incurred in 2018 / Total cost in year 2018) x 100

Cost incurred in 2018 =$238000

Total cost in 2018 = Cost incurred +Estimated cost = $238000 + $357000 = $595000

Percentage of completion =

($238000 / $595000)x100= 40%

Revenue recognised in year 2018 = Contract Revenue x Percentage of completion = $850000 x 40% = $340000

Gross profit in year 2018 = Revenue Recognise in year 2018 - Cost incurred in year 2018 = $340000 - $238000 = $102000.