Question

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.

Answer 1

• 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]