Question

Cady Construction received a contract to construct a hospital for $2,500,000. Construction began in 2019 and ended in 2020. Cost and other data are presented below: 2019 2020Costs incurred during the year $1,500,000 $1,300,000Estimated costs to complete 1,200,000 0Billings during the year 1,200,000 1,300,000Cash collections during the year 1,000,000 1,500,000 What is gross profit recognized during 2020 if Cady recognizes revenue over time according to percentage of completion?

Answer 1

Answer:

Gross profit recognized in 2020 = ($100,000)

Explanation:

Gross profit recognized = (Cost to date / Total estimated costs * Expected profit) - Previously recognized profit

Gross profit recognized in 2019 = $2,500,000 - ($1,500,000 + $1,200,000)  

Gross profit recognized in 2019 = $2,500,000 - $2,700,000

Gross profit recognized in 2019 = $(200,000)

Gross profit recognized in 2020 = [$2,500,000 - ($1,500,000 + $1,300,000)] - $(-200,000)

Gross profit recognized in 2020 = $2,500,000 - $2,800,000 - (-$200,000)

Gross profit recognized in 2020 = $2,500,000 - $2,800,000 + $200,000

Gross profit recognized in 2020 = -$100,000