Question

term fixed price contract to build an office tower for​ $10,000,000. In the first year of the contract Tullis incurs​ $3,000,000 of cost and the engineers determined that the remaining costs to complete are​ $5,000,000. Tullis billed​ $4,000,000 in year 1 and collected​ $3,500,000 by the end of the end of the year. Refer to Tullis Corporation. How much gross profit should Tullis recognize in Year 1 assuming the use of the completed

Answer 1

Answer: $750,000

Step-by-step explanation:

Given that,

Fixed price contract = $10,000,000

Cost incurred in the first year = $3,000,000

Remaining costs to complete =​ $5,000,000

Tullis billed =​ $4,000,000 in year 1

Collected​ by the end of the year = $3,500,000

Percentage of work completed =
`(Expenditures\ Incurred\ from\ Inception\ to\ Date)/(Total\ Estimated\ Costs\ for\ the\ Contract)`

=
`(3)/(8) * 100percent`

= 37.5%

Revenue recognized = 37.5% of $10,000,000

= $3,750,000

Income recognized = Revenue recognized - Cost incurred in the first year

= $3,750,000 - $3,000,000

= $750,000