Question

term fixed price contract to build an office tower for​ $10,000,000. In the first year of the contract Tullis incurs​ $3,000,000 of cost and the engineers determined that the remaining costs to complete are​ $5,000,000. Tullis billed​ $4,000,000 in year 1 and collected​ $3,500,000 by the end of the end of the year. Refer to Tullis Corporation. How much gross profit should Tullis recognize in Year 1 assuming the use of the completed

Answer 1

Answer: $750,000

Explanation:

Given that,

Fixed price contract = $10,000,000

Cost incurred in the first year = $3,000,000

Remaining costs to complete =​ $5,000,000

Tullis billed =​ $4,000,000 in year 1

Collected​ by the end of the year = $3,500,000

Percentage of work completed = $\frac{Expenditures\ Incurred\ from\ Inception\ to\ Date}{Total\ Estimated\ Costs\ for\ the\ Contract}$

= $\frac{3}{8} \times 100percent$

= 37.5%

Revenue recognized = 37.5% of $10,000,000

                                    = $3,750,000

Income recognized = Revenue recognized - Cost incurred in the first year

                                 = $3,750,000 - $3,000,000

                                 = $750,000