Question

Tullis Construction enters into a long-term fixed price contract to build an office tower for $10,600,000. In the first year of the contract Tullis incurs $1,600,000 of cost and the engineers determined that the remaining costs to complete are $4,800,000. Tullis billed $3,600,000 in year 1 and collected $3,500,000 by the end of the end of the year. How much gross profit should Tullis recognize in Year 1 assuming the use of the percentage-of-completion method?

18. Tullis Construction enters into a long-term fixed price contract to build an office tower for $10,600,000. In the first year of the contract Tullis incurs $1,600,000 of cost and the engineers determined that the remaining costs to complete are $4,800,000. Tullis billed $3,600,000 in year 1 and collected $3,500,000 by the end of the end of the year. How much gross profit should Tullis recognize in Year 1 assuming the use of the percentage-of-completion method? a. $0 b. $1,050,000 c. $2,650,000 d. $4,250,000

Answer 1

Answer: b. S1,050,000 Working Notes Total estimated cost to complete-Cost incured to date +Estimated cost to be complete $1,600,000+$4,800,000 =$6,400,000 % of Completion of project Cost incured to date /Total estimated cost to complete = $1,600,000/$6,400,000 = 25% Total estimated Gross profit-Contract Price -total estimated cost to complete contract S10,600,000 -S6,400,000 S4,200,000 Gross Profit recognized the first year $4,200,000*25%-$1,050,000