Question

During year​ 1, Fox Co. started a construction job with a contract price of​ $1,500,000. The job was completed in year 2 and the company uses the percentage of completion method. The following information is available for year 1 and year​ 2:

Year 1 Year 2

Cost incurred to date $350,000 $1,100,000

Estimated cost to complete 650,000 0

Billings to date 300,000 1,100,000

Collections to date 100,000 1,000,000

What amount of gross profit should Fox recognize for this job for year 2?

Group of answer choices

$400,000

$225,000

$325,000

$260,000

Answer 1

Answer:

The  gross profit should Fox recognize for this job for year 2 is $225,000

Working		Year 1 end	Year 2 End
A	Contract Price	$       1,500,000	$       1,500,000
B	Cost Incurred to Date	$           350,000	$       1,100,000
C	Estimated cost yet to be incurred to complete the contract	$       650,000	$                            -
D = B+C	Total Cost	$       1,000,000	$       1,100,000
E = (B/D) x 100	% of Completion	35.00%	100.00%
F = A x E	Revenue to date	$           525,000	$       1,500,000
G	Revenue of Previous year	$                            -	$          525,000
H = F - G	Net Revenue this year	$           525,000	$       975,000
I (=B)	Cost to date	$           350,000	$       1,100,000
J	Cost to date of previous year	$                            -	$          350,000
K = I - J	Net Cost for the year	$           350,000	$       750,000
L = H - K	Gross Profits	$           175,000	$          225,000  Answer