Craft Construction entered into a contract to construct a generator station for a utility customer. The project was started in 2016 and completed in 2017. Cost and other information is presented below
2016
2017
Costs incurred during the year
$225,000
$550,000
Estimated costs to complete
450,000
-0-
Billings during the year
200,000
700,000
Cash collections during the year
150,000
750,000
Refer to Craft Construction. Assume Craft uses the percentage-of-completion method for revenue recognition. Compute the amount of gross profit for 2016 and 2017.
What will be an ideal response?
Answer:
2016
Contract price
$900,000
Actual costs to date
225,000
Estimated costs to complete
450,000
Total estimated project costs
675,000
Estimated total gross profit
225,000
Percentage of Completion 225/675
33.33%
Gross profit
$75,000
2017
Contract price
$900,000
Costs Incurred 2016
$225,000
2017
550,000
Total Cost
$775,000
Total Gross Profit
125,000
Recognized in 2016
75,000
Recognized in 2017
50,000
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