Question

The Leto Construction Company began work on a $12,000 contract on 1/1/15. Planned completion was in 2017. The Percentage-of Completion method is used.

.......................................................................2015.................2016................2017......

costs incurred to date................................$2,500...............4,200................11,550....

estimated costs to complete......................$7500...............6300................0...........

billing to date...............................................$4000................5100................12,000....

collection to date........................................3800..................5000................11900....

The Gross Profit or (loss) recognized in 2017 is:

Select one:

a. $(150)

b. $150

c. $450

d. $(450)

Answer 1

Gross profit recognized in 2015 = (Costs to date / Estimated total costs * Expected profit) - Previously recognized profits

= [$2,500 / ($2,500 + $7,500) * ($12,000 - $2,500 - $7,500)] - $0

= $2,500 / $10,000 * $2,000 - $0

= $500

Gross profit recognized in 2016 = (Costs to date / Estimated total costs * Expected profit) - Previously recognized profits

= [$4,200 / ($4,200 + $6,300) * ($12,000 - $4,200 - $6,300)] - $500

= $4,200 / $10,500 * $1,500 - $500

= $100

Gross profit recognized in 2017 = (Costs to date / Estimated total costs * Expected profit) - Previously recognized profits

= [$11,550 / $11,550 * ($12,000 - $11,550)] - $500 - $100

= $(150)

The answer is Option a