Use the following to answer questions 29-30: Gomez, Inc. began work in 2010 on c
ID: 2459632 • Letter: U
Question
Use the following to answer questions 29-30:
Gomez, Inc. began work in 2010 on contract #3814, which provided for a contract price of $7,200,000. Other details follow:
2010
2011
Costs incurred during the year
$1,200,000
$3,675,000
Estimated costs to complete, as of December 31
3,600,000
0
Billings during the year
1,350,000
5,400,000
Collections during the year
900,000
5,850,000
29. Assume that Gomez uses the percentage-of-completion method of accounting. The portion of the total gross profit to be recognized as income in 2010 is
A) $450,000. B) $600,000. C) $1,800,000. D) $2,400,000.
30. Assume that Gomez uses the completed-contract method of accounting. The portion of the total gross profit to be recognized as income in 2011 is
A) $900,000. B) $1,350,000. C) $2,325,000. D) $7,200,000
2010
2011
Costs incurred during the year
$1,200,000
$3,675,000
Estimated costs to complete, as of December 31
3,600,000
0
Billings during the year
1,350,000
5,400,000
Collections during the year
900,000
5,850,000
Explanation / Answer
29) Year 2010 Cost incurred till date 1200000 Estimated costs to complete as of December 31 4800000 ( 1200000 + 3600000) % Complete 25 Total contract value 7200000 Estimated costs to complete 4800000 Gross Profit 2400000 Gross profit in 2010 based on percentage completed method ( 2400000 * 25%) 600000 Hence option B is correct 30) Completed contract method Contract price 7200000 Actual cost incurred 2010 1200000 2011 3675000 4875000 Gross profit 2011 2325000 Hence option C is correct
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