A company began work on a long-term construction contract in Year 1. The contract price was $3,000,000

Total Gross Profit (GP) = (Total Contract Price $3,000,000 - Cost $2,000,000) = $1,000,000

Cost incurred till year1 = ($700,000/$2,000,000 x100)=35%

therefore, GP for year1 = $1,000,000 x35% = $350,000 <or>

($700,000/$2,000,000) x ($3,000,000-$2,000,000) = $350,000

 

 Answer D: $350,000

Answer d) $350000- % of completio =7/20=0.35, contract value =$3000000

Total GP==1000000, GP for the1 st year =100000*0.35= $350000

the gross profit to be recognized in Year1=

[(total expected profit × percentage complete)-profit previously recognized]. 

[(1,000,000 ×35%) -0] =350,000  answer is D

 

Total expected profit = contract price - the estimated total cost 

                                  =3,000,000 -2,000,000 =1,000,000.

 

percentage complete = the cost incurred / the estimated total cost

                                   =700,000 /2,000,000 =35%

 

profit previously recognized = this is first year of the project so there is no profit previously recognized.

contract price =3,, Total est. cost =2,, Total est. G/P =1,, costs incurred during Yr.1 =, % of completed work during Yr1 =% (,/2,,)* G/P recognized during Yr1 =3,, (1,,*%). Thus, choice D, is the correct answer for this question

Option D. $350,000 is the answer.

 

 

Answer: D. $350,000

 

Contract Price:     3,000,000   Yr1 - Progress             =700,000/2,000,000  35%       Revenue Year1  =3,000,000 x35%              1,050,000 Cost Incurred                  700,000 Gross Profit Year1                350,000   

 

 

 

 

 

 

 

During3 years     Total Cost Incurred $2,000,000   Total Billings $3,000,000   Total Gross Profit $1,000,000         Total Collections $3,000,000 against Toal Billings       Cost Incurred +$700000 -Billings $800000          = GP $100,000 Year1 is the gross profit (GP) as (B) $100,000