Question

Triad Builders, Inc. is using the completed-contract method for a $14,700,000 contract that will take two years to complete. Data at December 31, 2015, the end of the first year, are as follows:

Costs incurred to date $7,520,000
Estimated costs to complete $8,060,000
Billings to date $6,440,000
Collections to date $5,980,000
The gross profit or loss that should be recognized for 2015 is:

a. $1,540,000 loss.
b. $1,080,000 loss.
c. $880,000 loss.
d. $0.

Answer 1

Using the completed-contract method, Triad Builders, Inc. will not recognize any gross profit or loss in 2015 for the contract in question as revenues and costs are only recognized upon contract completion. The correct answer to the student's question is $0.

Step-by-step explanation:

The subject question involves calculating the gross profit or loss recognized for the year 2015 using the completed-contract method. Under this accounting method, no profit or loss is recognized until the contract is complete. Consequently, even though there are costs incurred to date and billings to date, the gross profit or loss that should be recognized for the year 2015 is $0, as per the requirements of the completed-contract method. The revenue and costs associated with the contract will be recognized only upon the completion of the contract, which in this scenario, is not until after 2015.