S un f ish C onst r u c tion C o mp a n y u s e s the p e r ce nt a g e - o f -
ID: 2502647 • Letter: S
Question
Sunfish Construction Company uses the percentage-of-completion method of accounting. In 2014, Sunfish began work on a project which had a contract price of $1,600,000 and estimated costs of
$1,200,000. Additional information is as follows:
2014
2015
Costs incurred during the year ............
$240,000
$1,060,000
Estimated costs to complete, as of
960,000
12/31/14 ................................
Billings during the year ..................
290,000
1,310,000
Collections during the year ...............
250,000
1,200,000
The amount of gross profit Sunfish should recognize on this contract during 2014 is
a.
$40,000.
b.
$80,000.
c.
$100,000.
d.
$200,000.
2014
2015
Costs incurred during the year ............
$240,000
$1,060,000
Estimated costs to complete, as of
960,000
12/31/14 ................................
Billings during the year ..................
290,000
1,310,000
Collections during the year ...............
250,000
1,200,000
Explanation / Answer
Initial amount of revenue= 1600000
Contract cost incurred= 240000
Estimated cost= 960000
Total estimated contract cost= 1200000
Estimated profit=1600000-1200000=400000
Stage of completion=( 240000/1200000)*100=20%
Revenue= 1600000*20%=320000
cost incurred= 240000
Profit=320000-240000= $80000
The gross profit to be recognised in 2014= $80000
So, answer is b. $80,000.
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