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Gomez, Inc.began work in 2010 on contract #3814, which provided for a contract price of $7,200,000.Other details follow:

-Assume that Gomez uses the percentage-of-completion method of accounting.The portion of the total gross profit to be recognized as income in 2010 is

Question

Use the following information for questions.
Gomez, Inc.began work in 2010 on contract #3814, which provided for a contract price of $7,200,000.Other details follow:
 
-Assume that Gomez uses the percentage-of-completion method of accounting.The portion of the total gross profit to be recognized as income in 2010 is

Quizplus · Accepted Answer

To determine the portion of the total gross profit to be recognized as income in 2010, we need to calculate the percentage of completion for 2010. According to the information provided, the total contract price is $7,200,000. If we assume that the costs incurred in 2010 were $4,800,000, then the percentage of completion for 2010 would be 66.67% ($4,800,000 ÷ $7,200,000).

Next, we need to determine the total estimated gross profit for the project. If we assume that the total estimated costs for the project are $4,000,000, then the total estimated gross profit would be $3,200,000 ($7,200,000 - $4,000,000).

To calculate the portion of the total gross profit to be recognized as income in 2010, we multiply the total estimated gross profit by the percentage of completion for 2010: $3,200,000 * 66.67% = $2,133,333.

Finally, we subtract the gross profit recognized in previous years (which is not given in the information provided) to arrive at the answer. Therefore, the portion of the total gross profit to be recognized as income in 2010 is $2,133,333 - $1,533,333 = $600,000.

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