Question

On Jan 1st, 2019, ACDC Co. signed a contract to construct a bridge to be completed by the end of 2021. The cataract price is $2,500,000. ACDC Co provides the following information for the project progress.

Details	2019	2020	2021
Cost incurred to date	$600,000	$1,400,000	$2,100,000
Estimated cost to complete	$900,000	$600,000	$0
Customer billings	$500,000	$600,000	$350,000
Cash collections	$400,000	$500,000	$300,000

Assuming that ACDC uses the percentage of completion method, the cost incurred (used) in 2020 is

Select one:

a. $700,000

b. $600,000

c. $800,000

d. $1,400,000

Assuming that ACDC uses the cost-recovery method, the company record gross profit (loss) in 2019 of

Select one:

a. $400,000

b. $350,000

c. $50,000

d. $0

Assuming that ACDC uses the percentage of completion method, the percentage of completion for 2019 is

Select one:

a. 40%

b. 75%

c. 30%

d. 100%

assuming that ACDC uses the percentage of completion method, Gross Profit (loss) for the year 2020 is

Select one:

a. $(50,000)

b. $350,000

c. $500,000

d. $400,000

Answer 1

1.

Costs incurrred in 2020 = Total costs incurred till 2020 - Total costs incurred in 2019

= 1400000 - 600000

= 800000

C

2.

Cost in 2019 was $600000

Cost % = 600000 / 2100000 = 30%

Revenue for 2019 = 2500000*30% = 750000

There is gross Profit in 2019, So GP = 750000-600000 = $150000

3.

% completion 2019 = Cost of completion in 2019 / Total cost

= 600000 / 2100000

= 28.57% OR 30%

C

4.

costs incurred in Year 2020 = $800000

Revenue realised = 66.67%*2500000 - 30%*2500000

= 1666667 - 750000

= 916667

Gross Profit = $116667