1)Mars Corporation uses the percentage-of-completion method. At the end of the f

Question

1)Mars Corporation uses the percentage-of-completion method. At the end of the first year of a $9,000,000 contract, the following information is available:

In the first year, Mars should recognize gross profit of

a

b

c

d

2) Mars Corporation uses the completed-contract method. At the end of the first year of a $9,000,000 contract, the following information is available:

In the first year, Mars should recognize gross profit of

a

b

c

d

Costs to date: $2,000,000 Estimated costs to complete 6,000,000 Progress billings during the year 1,800,000 Cash collected during the year 1,500,000

Explanation / Answer

1) Percentage completion = 2000000*100/8000000 = 25%

Percentage revenue upto date = 9000000*25% = 2250000

Cost upto date = 2000000

Gross profit = (2250000-2000000) = 250000

so answer is b) $250,000

2) In completed contract method gross profit recognize when contract is complete so in first year gross profit not recognize

so answer is c) $0

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