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.

Homework Answers

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]

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