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Black Bear Construction Company has a contract to construct a $6,000,000 bridge at an estimated cost of $5,300,000. The contract is to start in July 2017, and the bridge is to be completed in October 2019. The following data pertain to the construction period.

2015 2016 2017
Costs to date $1,325,000 $3,780,000 $5,430,000
Estimated costs to complete 3,975,0001, 620,000 —
Progress billings during the year 1,200,000 3,200,000 1,600,000
Cash collected during the year 1,000,000 2,340,000 2,660,000

What amount of gross profit should Black Bear recognize in 2017 using the percentage-of-completion method?

a. $150,000
b. $169,000
c. $210,000
d. $530,000

Sagot :

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Answer:

a. $150,000

Explanation:

Calculation for What amount of gross profit should Black Bear recognize in 2017 using the percentage-of-completion method

First step is to calculate the Total estimated contract costs at 2016

Total estimated contract costs at 2016=$3,780,000+$1,620,000

Total estimated contract costs at 2016=$5,400,000

Second step is to calculate the Percentage of completion

Percentage of completion = $3,780,000 / ($3,780,000+$1,620,000)

Percentage of completion =$3,780,000 / $5,400,000

Percentage of completion =0.7*100

Percentage of completion =70%

Now let calculate the gross profit

Using this formula

Gross profit=Percentage of completion *(Contract Price-Total estimated contract costs at 2016)

Let plug in the formula

Gross profit=70%*($6,000,000-$5,400,000)

Gross profit=70%*$600,000

Gross profit=$150,000

Therefore amount of gross profit should Black Bear recognize in 2017 using the percentage-of-completion method will be $150,000

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