The following scenario will be used for the next three questions Miser Construct
ID: 2338611 • Letter: T
Question
The following scenario will be used for the next three questions Miser Construction Company (who applies the Percentage of Completion method) was the low bidder on a construction project to build a bridge for $14,000,000. The project was begun in 2016 and completed in 2018. Cost and other data are presented below ("costs incurred" are for each particular year): 2016 2017 2018 Costs incurred (during specific year) Estimated costs to complete (end of year) Billings during the year $3,0.000 $6,000,000 $2.800,000 $9,000,000 $3,000,000 $6,800,000 $6,600,000 $0 54,000,000 $4,600,000 $3,200,000 Cash collections during the year $%2,800,000Explanation / Answer
Gross profit to be recognized under the percentage of completion method = (costs to date/total estimated costs*expected profits) - previously recognized profits
Costs to date = $3,000,000
Total estimated costs = Costs to date + Estimated costs to complete at the year end
= $3,000,000 + $9,000,000
= $12,000,000
Expected profits = Contract price - Total estimated costs
= $14,000,000 - $12,000,000
= $2,000,000
Previously recognized profits = $0
Profit to be recognized in 2016 = ($300,000/$12,000,000*$2,000,000) - $0
= $500,000