Question

Big Wheel Construction had the following two construction projects which began in year​ 1:

	Project 1	Project 2
Contract price	$690,000	$425,000
Costs incurred during year 1	200,000	225,000
Estimated costs to complete	400,000	225,000
Billed to customers during year 1	230,000	175,000
Received from customers during year 1	100,000	150,000

What amount of gross profit​ (loss) would Big Wheel report on its year 1 income​ statement?

Percentage of Completion

Completed Contract

A.

​$17,500

​$(12,500)

B.

​$5,000

​$(25,000)

C.

​$5,000

​$(12,500)

D.

​$17,500

​$(25,000)

Answer 1

Solution: Option-1
Explanation:

   Project-1   Project-2     
Total price   690,000   425000     
Minus: Projected cost   600,000   450000     
Profit   90,000   -25000     
             
Recognized profit:   30,000   -12500     
(200,000 / (200,000 + 400,000) * 90,000 = 30,000             
(225,000 / (225000 + 225000) * -25000 = -12500             

Gross profit​ (loss) Big Wheel report on Year-1 income​ statement: 30,000 - 12500 = 17500; 12,500