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A construction company entered into a fixed-price contract to build an office building for $46 million. Construction costs incurred during the first year were $12 million and estimated costs to complete at the end of the year were $28 million. The company recognizes revenue over time according to percentage of completion.

How much revenue will appear in the company’s income statement in the first year using the percentage-of-completion method? (Enter your answer in whole dollars.)



How much gross profit or loss will the company recognize in the first year using the percentage-of-completion method? (Enter your answer in whole dollars.)

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Answer:

Check the explanation

Explanation:

Using the percentage-of-completion method (which is an accounting method or technique in which the earnings and expenses of contracts that are of long-term basis are documented as a percentage of the completed work during a particular period.)

Total costs = Incurred costs + estimated costs to complete = $8 million + $12 million = $20 million

Revenue to recognize = $8m/$20m*$28m = $11.2 million

Gross Profit = Revenue recognized less costs incurred

= $11.2m - $8m = $3.2 million

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