Gleason Construction enters into a long-term fixed price contract to build an office building for $20,000,000. In the first year of the contract Gleason incurs $7,000,000 of cost and the engineers determined that the remaining costs to complete are $7,000,000. How much gross profit or loss should Gleason recognize in Year 1 assuming the use of the completed-contract method?
A) $0
B) $6,000,000 profit
C) $6,000,000 loss
D) $5,000,000 profit

Question

Quizplus · Accepted Answer

Under the completed-contract method, revenue and gross profit are recognized only when the contract is completed. Therefore, in Year 1, Gleason should recognize $0 gross profit or loss.

Gleason Construction Enters into a Long-Term Fixed Price Contract to Build