Robin Construction Company began a long term contract in 2018. The contract price was $800,000. The...
Robin Construction Company began a long term contract in 2018. The contract price was $800,000. The estimated cost of the contract at the time it was begun was $500,000. The actual cost incurred in 2018 was $350,000. The contract was completed in 2019 and the cost incurred was $125,000. Under the percentage of completion method.
a. Robin should report $90,000 of income in 2018
b. Robin should report $210,000 income in 2018
c. Robin should report $300,000 income in 2018
d. Robin should report $325,000 income in 2018
Homework Answers
Option (b) is correct
First we will calculate the estimated income of the contract as per below:
Estimated income = Contract price - Estimated cost
Estimated income = $800000 - $500000
Estimated income = $300000
Next we will calculate the percentage of work done in 2018 as per below:
Percentage of work done in 2018 = Costs incurred in 2018 / Total estimated cost * 100
Percentage of work done in 2018 = $350000 / $500000 * 100 = 70%
Now, we will calculate the net income in 2018 as below:
Net income in 2018 = Estimated income * Percentage of work done in 2018
Net income in 2018 = $300000 * 70% = $210000
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