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)$1 200 000.
C)$400 000.
D)none of the above

Question

Quizplus · Accepted Answer

Under the percentage of completion method, the gross profit is calculated based on the proportion of costs incurred to total estimated costs. In Year 1, the costs incurred are $800,000 out of the total estimated costs of $2,800,000, which is 28.57%. The total gross profit expected is $1,400,000 ($4,200,000 - $2,800,000). Therefore, the gross profit for Year 1 is 28.57% of $1,400,000, which is approximately $400,000.

The Total Contract Price to Build an Office Building Is