Question

On February 1, 2020, a company agreed to construct a building at a contract price of $40,000. The company estimated the project would be finished in 2022. Information relating to the costs and billings for this contract is as follows:

                                                    2020             2021           2022

Total costs incurred to date        $8,000        $10,000         $22,000

Estimated costs to complete      12,000          6,000            -0-

Customer billings to date           8,000          18,000         28,000

Collections to date                     5,000           15,000         26,000

If the company uses the percentage-of-completion method, the gross profit to be recognized in 2021 is___________________________ .

Answer 1

If the company uses the percentage-of-completion method, the gross profit to be recognized in 2021 is $7,000

Working

		2020	2021
A	Contract Price	$ 40,000	$ 40,000
B	Cost Incurred to Date	$ 8,000	$ 10,000
C	Estimated cost yet to be incurred to complete the contract	$ 12,000	$ 6,000
D = B+C	Total Cost	$ 20,000	$ 16,000
E = (D/B) x 100	% of Completion	40%	63%
F = A x E	Revenue to date	$ 16,000	$ 25,000
G	Revenue of Previous year	$ 0	$ 16,000
H = F - G	Net Revenue this year	$ 16,000	$ 9,000
I	Cost to date	$ 8,000	$ 10,000
J	Cost to date of previous year	$ 0	$ 8,000
K = I - J	Net Cost for the year	$ 8,000	$ 2,000
L = H - K	Gross Profits	$ 8,000	$ 7,000