Camey Construction enters into a long-term fixed price contract to build an office building for $5,000,000. In the first year of the contract Camey incurs $1,400,000 of cost and the engineers determined that the remaining costs to complete the project are $2,500,000. Camey billed $4,000,000 and collected $1,000,000 in year 1. Refer to Camey Construction. How much gross profit should Camey recognize in Year 1 assuming the use of the percentage of completion method? (Round any intermediary percentages to the nearest hundredth percent, and round your final answer to the nearest whole dollar.)
A) $394,900
B) $2,600,000
C) $525,000
D) $1,400,000

Question

Quizplus · Accepted Answer

Gross profit = (Percentage of completion * Contract price) - Costs incurredPercentage of completion = (Costs incurred to date / Total estimated costs) * 100%= (1,400,000 / 3,900,000) * 100%= 35.90%Gross profit = (35.90% * 5,000,000) - 1,400,000= 1,795,000 - 1,400,000= $394,900

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