1. Green Construction Co. has consistently used the percentage-of-completion met
ID: 2645397 • Letter: 1
Question
1. Green Construction Co. has consistently used the percentage-of-completion method of recognizing revenue. During 2014, Green entered into a fixed-price contract to construct an office building for $24,000,000. Information relating to the contract is as follows:
At December 31
2014 2015
Percentage of completion 15% 45%
Estimated total cost at completion $18,000,000 $19,200,000
Gross profit recognized (cumulative) 1,200,000 2,880,000
Contract costs incurred during 2015 were ??
1. Green Construction Co. has consistently used the percentage-of-completion method of recognizing revenue. During 2014, Green entered into a fixed-price contract to construct an office building for $24,000,000. Information relating to the contract is as follows:
At December 31
2014 2015
Percentage of completion 15% 45%
Estimated total cost at completion $18,000,000 $19,200,000
Gross profit recognized (cumulative) 1,200,000 2,880,000
Contract costs incurred during 2015 were
a. $5,760,000.
b. $5,940,000.
c. $6,300,000.
d. $8,640,000.
Explanation / Answer
Answer:
Calculation of Contract costs incurred during 2015:
Estimated total cost at completion (For year 2014) = $18000000
Percentage of completion (Year 2014) = 15%
Hence Cost incurred during year 2014 = $18000000*15% = $2700000
Estimated total cost at completion (For year 2015) = $19200000
Percentage of completion (Year 2015) = 45%
Hence total cost incurred till year 2015 = $19200000*45% = $8640000
Hence cost incurred during the year 2015 = Total cost incurred till year 2015 - Cost incurred during year 2014
= $8640000 - $2700000 = $5940000
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