Question

Remington Construction Company uses the percentage-of-completion method. During 2014, the company entered into a fixed-price contract to construct a building for Sherman Company for $24,000,000. The following details pertain to the contract:

At December 31, 2014 At December 31, 2015
Percentage of completion 25% 60%
Estimated total cost of contract $18,000,000 $20,000,000
Gross profit recognized to date 1,500,000 2,400,000
The amount of construction costs incurred during 2015 was
a. $12,000,000.
b. $7,500,000.
c. $4,500,000.
d. $2,000,000.

Answer 1

The amount of construction costs incurred during 2015 is $2,000,000

Step-by-step explanation:

The construction costs incurred during 2015 can be calculated by finding the difference in the estimated total cost of the contract between December 31, 2014 and December 31, 2015. In 2014, the estimated total cost was $18,000,000, and in 2015, it was $20,000,000. Therefore, the difference in cost is $20,000,000 - $18,000,000 = $2,000,000.