On April 1, 2014, Dougherty Inc. entered into a cost-plus-fixed-fee contract to

Question

On April 1, 2014, Dougherty Inc. entered into a cost-plus-fixed-fee contract to construct an electric generator for Altom Corporation. At the contract date, Dougherty estimated that it would take 2 years to complete the project at a cost of $1,820,000. The fixed fee stipulated in the contract is $474,000. Dougherty appropriately accounts for this contract under the percentage-of-completion method. During 2014, Dougherty incurred costs of $800,800 related to the project. The estimated cost at December 31, 2014, to complete the contract is $1,019,200. Altom was billed $619,000 under the contract.

Prepare a schedule to compute the amount of gross profit to be recognized by Dougherty under the contract for the year ended December 31, 2014. Show supporting computations in good form. (If an amount reduces the account balance then enter with negative sign., e.g. -45 or parentheses e.g. (45).)

DOUGHERTY INC.
Computation of Gross Profit to be
Recognized on Uncompleted Contract
Year Ended December 31, 2014

DOUGHERTY INC.
Computation of Gross Profit to be
Recognized on Uncompleted Contract
Year Ended December 31, 2014

$

$

Explanation / Answer

Total cost to complete = 800800 + 1019200 = 1820000

% of completion = 800800 / 1820000 = .44 or 44%

gross profit recognised in 2014 = 474000 *.44 =$ 208560

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