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Streetside Construction agreed to build a shopping centre for $25,000,000 over the next four years.Estimated cost for years one through four are: $7,500,000; $5,000,000; $5,000,000; and $2,500,000.
-Assume total estimated costs to complete the job at the beginning of year three were revised to $27,000,000.If actual costs in year four were equal to those revised estimated costs, and the completed contract method were used, what would be the profit or loss recognized in year four?
A)$ -0-
B)$2,000,000)
C)$3,000,000
D)$1,000,000)

Question

Quizplus · Accepted Answer

Under the completed contract method, profit or loss is recognized only when the contract is completed. Since the total revised estimated costs ($27,000,000) exceed the contract price ($25,000,000), there is a total loss of $2,000,000. However, since the loss is recognized in the year the contract is completed, the profit or loss recognized in year four is $0, as the loss would have been recognized in the previous year when the revision was made.

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