Haft Construction Company has consistently applied the percentageof completion m

Question

Haft Construction Company has consistently applied the percentageof completion method. On Jan 10, 2008 Haft began work on a$3,000,000 construction contract. At the inception date, theestimated cost of construction was $2,250,000. The following inforelate to the progress of the contact:

Income recognized at 12/31/08 300,000 Cost incurred1/10/08 through 12/31/09 1,800,000 Estimated costto compelte at 12/31/09 600,000
1. In its income statement for the year ended Dec 31 ,2009, whatamount of gross profit should Haft report?

Income recognized at 12/31/08 300,000 Cost incurred1/10/08 through 12/31/09 1,800,000 Estimated costto compelte at 12/31/09 600,000

Explanation / Answer

                                       cost   incurredso far Recognizedprofit   =   ----------------------------   x   estimatedprofit   -   previous years'profit                                     totalexpected project cost
Gross profit for 2008 = $300,000 so cost for 2008 = $2,250,000 /$3,000,000 = 75 % of Sales and GP = 25% of sales so cost = $300,000 x 75 / 25 = $900,000                                                                      $1,800,000 Recognizedprofit   for2009         = ------------------------- x (3,000,000 - 2,400,000) -$300,000                                                             $1,800,000+ $600,000                                                                       $1,800,000                                                          =      -------------   x   $300,000    =   $225,000                                                                   $2,400,000

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