Question

Linx Corp. recognizes revenue over time to account for long-term construction contracts. The contract price is $1,000,000 and the estimated costs to complete the project are $500,000 on the date the contract was signed. Linx subsequently has the following information:

Linx recognized $200,000 of gross profit during year 1. What is the gross profit or loss recognized in year 2?

Answer 1

To find the gross profit or loss recognized in year 2 for Linx Corp., one needs to know the revenue recognized and the costs incurred in year 2. Gross profit is calculated by subtracting the cumulative costs from the cumulative revenue recognized to date in the contract.

Step-by-step explanation:

To calculate the gross profit or loss recognized in year 2 for Linx Corp., we would need additional information regarding the revenue recognized in year 2 and the costs incurred in year 2. However, we can discuss how one might approach this calculation based on the information that was given for year 1 and the general principles of revenue recognition over time for long-term construction contracts.

In year 1, Linx Corp. recognized a gross profit of $200,000. Typically, in a long-term construction contract, a company would recognize revenue and gross profit over time, which usually correlates with the progress towards the completion of the contract. The gross profit in any given year is calculated by taking the total revenue recognized and subtracting the costs incurred up to that point. If the costs exceed the revenue recognized, the company would recognize a gross loss.

To determine the gross profit or loss for year 2, it's necessary to know the revenue recognized in year 2 and any additional costs that were incurred. With this information, one would subtract the cumulative costs from the cumulative revenue recognized to find the gross profit for year 2.