Classical Ltd.Began work in 2017 on a contract for $1,250,000.Other data are: If Classical uses the completed-contract method, the gross profit to be recognized in 2018 is
A)$375,000.
B)$400,000.
C)$850,000.
D)$1,000,000.

Question

Classical Ltd.Began work in 2017 on a contract for $1,250,000.Other data are:  If Classical uses the completed-contract method, the gross profit to be recognized in 2018 is
A)$375,000. 
B)$400,000. 
C)$850,000. 
D)$1,000,000.

Quizplus · Accepted Answer

Under the completed-contract method, no revenue or expenses are recognized until the contract is completed. Therefore, the gross profit to be recognized in 2018 would be the total gross profit from the contract ($1,250,000) minus the gross profit recognized in 2017, which was $875,000 ($1,250,000 contract amount - $375,000 gross profit recognized in 2017). Therefore, the gross profit to be recognized in 2018 is $375,000.