Answer:
The gross profit recognized in 2007 is $1,200,000
Explanation:
Use the following formula to the percentage of completion
Percentage of completion = Total Cost / Contract price
Total cost = Cost incurred to date + Estimated cost to complete = $3,600,000 + $2,400,000 = $6,000,000
Contract price = $7,500,000
Placing values in the formula
Percentage of completion = $6,000,000 / $7,500,000 = 0..80 = 80%
Use the following formula to calculate the gross profit
Gross profit = Contract price - Total Cost = $7,500,000 - $6,000,000 = $1,500,000
Now calculate the gross profit recognised as follow
Gross profit recognised = Gross profit x Percentage of completion = $1,500,000 x 80% = $1,200,000
