Question

Indiana Inc. entered into a contract to construct a building in three years for a fixed price of $2,200,000. Indiana recognizes revenue over time according to the percentage of the project that has been completed. Cost incurred in 2015 is $250,000 and estimated cost to complete is $1,750,000. Cost incurred in 2016 is $1,500,000 and estimated cost to complete is $250,000.

In 2016, Indiana would report (rounded to the nearest thousand) gross profit (loss) of:

Answer 1

• In 2016,Indiana would report gross profit of $308,000(approximately)

explanation:

Particulars	2015	2016
Contract price	$2,200,000	$ 2,200,000
Cost till date.	$ 250,000	$ 1,500,000
Cost during year	$ 250,000	$ 1,250,000. ($1,500,000-250,000)
Estimated cost to be completed	$1,750,000	$ 250,000
Estimated total cost	$2,000,000	$1,500,000
Percentage complete (cost during year/estimated total cost)	12.5%	83.3%
Revenue to be recognised(contract price*%completion)	$ 275,000	$ 1,558,000 (rounded off to nearest thousand)
Gross profit (revenue to be recognised-cost during year)	$ 25,000	$ 308,000