Question

Superior Construction Co. was contracted to plaster all the buildings of a historical preservation project for $2,500,000 over the next 2 years. Total estimated costs to complete are $2,000,000. Actual costs incurred in Years 1 and 2 were $800,000 and $900,000, respectively. Using the percentage-of- completion method, what amount of gross profit would Superior report in Year 1?
A. $225,000
B. $200,000
C. $500,000
D. $250,000

Answer 1

Answer:

Gross Profit in Year 1 = $200000

so correct option is B. $200,000

Explanation:

given data

historical preservation project = $2,500,000

time = 2 year

estimated costs = $2,000,000

Actual costs Years 1 = $800,000

Actual costs Years 2 = $900,000

to find out

what amount of gross profit would Superior report in Year 1

solution

we find here first Percentage Completion that is express as

Percentage Completion = Cost to date ÷  Estimated Total Cost  .............1

put her value we get

Percentage Completion = $\frac{800000}{2000000}$

Percentage Completion  = 40%

and

Revenue Recognized will be here

Revenue Recognized = Percentage Completion  × Total estimated Revenue   ...............2

Revenue Recognized = 40 % × 25000000

Revenue Recognized = 1000,0000

so here Gross Profit in Year 1  will be  

Gross Profit in Year 1 = Revenue Recognized - Cost to date of year 1   ..............3

Gross Profit in Year 1 =   1000,0000 - v800000

Gross Profit in Year 1 = $200000

so correct option is B. $200,000