Use the following information for questions

-If Frey uses the percentage-of-completion method, the gross profit to be recognized in 2010 under the earnings approach is
A)$400,000.
B)$420,000.
C)$900,000.
D)$200,000.

Question

Use the following information for questions 
 
-If Frey uses the percentage-of-completion method, the gross profit to be recognized in 2010 under the earnings approach is
A)$400,000. 
B)$420,000. 
C)$900,000. 
D)$200,000.

Quizplus · Accepted Answer

The percentage-of-completion method recognizes revenue and expenses in proportion to the percentage of work completed. Based on the given information, the total contract price is $4,200,000, and as of December 31, 2010, 50% of the project was completed. Therefore, the total revenue to be recognized in 2010 is $2,100,000 (50% of $4,200,000). 
In addition, the total cost incurred as of December 31, 2010, is $1,260,000 (30% of $4,200,000), and the estimated total cost is $2,100,000, which was also evenly incurred throughout the project. Therefore, the gross profit to be recognized in 2010 is $840,000 ($2,100,000 - $1,260,000), which corresponds to choice B.

Use the Following Information for Questions