Question

On April 1, 2014, Headland Inc. entered into a cost-plus-fixed-fee contract to construct an electric generator for Altom Corporation. At the contract date, Headland estimated that it would take 2 years to complete the project at a cost of $1,962,000. The fixed fee stipulated in the contract is $467,000. Headland appropriately accounts for this contract under the percentage-of-completion method. During 2020, Headland incurred costs of $829,900 related to the project. The estimated cost at December 31, 2020, to complete the contract is $1,100,100. Altom was billed $566,000 under the contract.
Prepare a schedule to compute the amount of gross profit to be recognized by Headland under the contract for the year ended December 31, 2014.

Answer 1

Answer:

Gross profit to be recognized = $196,140

Explanation:

                         Headland Inc.

Gross profit to be recognized by Headland at December 31, 2014 ending

Estimated contract cost                                                    $1,962,000

Fixed fee                                                                             $467,000

Total  $1,962,000+ $467,000)                                         $2,429,000

Total estimated cost                                                           $1,962,000

Gross profit ($2,429,000- $1,962,000)                            $467,000

percentage of completion:( $829,900/1,962,000)              42%

Gross profit to be recognized: $467,000*42%               $196,140