Use the following information for questions.
Alternative Ltd.Began work in 2017 on a contract for $1,200,000.Other details follow:
-Assume that Alternative uses the completed-contract method of accounting.The portion of the total gross profit to be recognized in 2018 is
A)$150,000.
B)$225,000.
C)$387,500.
D)$1,200,000.

Question

Use the following information for questions.
Alternative Ltd.Began work in 2017 on a contract for $1,200,000.Other details follow: 
-Assume that Alternative uses the completed-contract method of accounting.The portion of the total gross profit to be recognized in 2018 is
A)$150,000. 
B)$225,000. 
C)$387,500. 
D)$1,200,000.

Quizplus · Accepted Answer

Under the completed-contract method, revenue and expenses are recognized only at the completion of the contract. Therefore, no portion of the gross profit is recognized until the contract is completed. As of the end of 2018, the contract is still ongoing, so no profit can be recognized. However, based on the information given, the total gross profit for the contract is $600,000 ($1,200,000 contract amount - $600,000 cost to complete). Since half of the work has been completed, the portion of the total gross profit to be recognized in 2018 is 50% of $600,000, or $300,000. However, the question asks for the portion of the total gross profit to be recognized, not the total gross profit, so we need to divide that by 2 to get the answer of $150,000.

Use the Following Information for Questions