Question

# Long Construction Company uses the percentage-of-completion method of accounting for long-term construction contracts. During 2021, Long...

Long Construction Company uses the percentage-of-completion method of accounting for long-term construction contracts. During 2021, Long began work on a \$400 million fixed-fee construction contract, which was completed in 2024. Cost incurred and estimated costs to complete at year-end for the life of the contract are as follows (\$ in millions):

 Cost Incurred Estimated Costs to Complete as of December 31 2021 \$60 \$240 2022 \$84 \$176

For the year 2022, Long should have recognized gross profit on this contract of:

 a.\$20 million. b.\$18 million. c.\$16 million. d.\$14 million.

• Correct Answer = Option ‘C’ \$ 16 millions Gross Profits for Year 2022
 Working 2021 2022 A Contract Price \$400 \$400 B Cost Incurred to Date \$60 \$144 C Estimated cost yet to be incurred to complete the contract \$240 \$176 D = B+C Total Cost \$300 \$320 E = (B/D) x 100 % of Completion 20.00% 45.00% F = A x E Revenue to date \$80 \$180 G Revenue of Previous year \$0 \$80 H = F - G Net Revenue this year \$80 \$100 I (=B) Cost to date \$60 \$144 J Cost to date of previous year \$0 \$60 K = I - J Net Cost for the year \$60 \$84 L = H - K Gross Profits \$20 \$16 [ANSWERS]

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