Question

# The Leto Construction Company began work on a \$12,000 contract on 1/1/15. Planned completion was in...

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)

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)

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