The total contract price to build an office building is $4 200 000, with estimated costs of $2 800 000. The construction firm's costs for Year 1 were $800 000. Under the percentage of completion method, gross profit reported in Year 1 is:
A)$2 200 000.
B)$400 000.
C)$1 200 000.
D)none of the above

Question

Quizplus · Accepted Answer

Under the percentage of completion method, the percentage of completion is calculated as costs incurred to date divided by total estimated costs. For Year 1, this is $800,000 / $2,800,000 = 28.57%. The gross profit is then 28.57% of the total gross profit ($4,200,000 - $2,800,000 = $1,400,000), which is approximately $400,000.

The Total Contract Price to Build an Office Building Is