Tullis Construction enters into a long-term fixed price contract to build an office tower for $10,700,000. In the first year of the contract Tullis incurs $2,100,000 of cost and the engineers determined that the remaining costs to complete the project are $4,900,000. Tullis billed $4,000,000 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 completed-contract method?
A) $0
B) $1,900,000
C) $3,700,000
D) $7,000,000

Question

Quizplus · Accepted Answer

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

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