Tullis Construction enters into a long-term fixed price contract to build an off

Question

Tullis Construction enters into a long-term fixed price contract to build an office tower for $10,600,000. In the first year of the contract Tullis incurs $1,600,000 of cost and the engineers determined that the remaining costs to complete are $4,800,000. Tullis billed $3,600,000 in year 1 and collected $3,500,000 by the end of the end of the year. How much gross profit should Tullis recognize in Year 1 assuming the use of the percentage-of-completion method?

a. $0
b. $1,050,000

c. $2,650,000

d. $4,250,000

Explanation / Answer

The Answer is B - $10,50,000

Tullis should recognize the Gross Profit of $ 10,50,000

Percentage of Completion Method

(A) Costs incurred to date                         $ 16,00,000

Estimated future costs                                48,00,000

(B) Estimated total costs                           64,00,000

Progress billings to date 36,00,000

Cash collected to date 35,00,000

C) Est. total gross profit (1,06,00,000-B) 42,00,000  

(D) Percent Complete (A/B)                       25%           

Total GP Recognized to Date (C*D) 10,50,000  

Current Yr. Gross Profit Recognized 10,50,000  

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ALL THE BEST !!!

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