Hiser Builders, Inc. is using the completed-contract method for a $9,800,000 contract that will take two years to complete. Data at December 31, 2015, the end of the first year, are as follows: $\begin{array}{lr}
\text { Costs incurred to date } & \$ 4,480,000 \
\text { Estimated costs to complete } & 5,740,000 \
\text { Billings to date } & 4,200,000 \
\text { Collections to date } & 3,500,000
\end{array}$ The gross profit or loss that should be recognized for 2015 is
A) $0.
B) a $420,000 loss.
C) a $210,000 loss.
D) a $184,800 loss.

Question

Quizplus · Accepted Answer

Under the completed-contract method, a loss is recognized in the period it becomes evident. The total estimated cost is $10,220,000 ($4,480,000 + $5,740,000), which exceeds the contract price of $9,800,000, resulting in a $420,000 loss.

Hiser Builders, Inc The Gross Profit or Loss That Should Be Recognized for $9,800,000