Final answer:
To determine the gross profit recognized by Eilert Construction Company for the year ended December 31, 2015, using the percentage-of-completion method, the costs to date are divided by the estimated total costs to find the percentage of completion, the contract value is then multiplied by this percentage, and finally, costs incurred are subtracted from the revenue recognized to date. The correct answer is a gross profit of $805,000.
Step-by-step explanation:
To calculate the gross profit recognized by Eilert Construction Company for the year ended December 31, 2015, using the percentage-of-completion method, we need to follow these steps:
- Determine the percentage of the project completed by the end of 2015. This is calculated by dividing the costs incurred to date by the estimated total costs.
- Calculate the revenue recognized up to the end of 2015. This is done by multiplying the total contract value by the percentage of completion.
- Recognize the gross profit by deducting the costs incurred to date from the revenue recognized to date.
Now let's apply these steps:
Percentage of Completion = $8,855,000 / $19,250,000 = 0.46 (or 46%)
Revenue Recognized to Date = $21,000,000 * 0.46 = $9,660,000
Gross Profit to Date = Revenue Recognized - Costs Incurred = $9,660,000 - $8,855,000 = $805,000
Therefore, the gross profit recognized by Eilert Construction Company for the year ended December 31, 2015, is $805,000 (Option c).