Question

On February 1,2023 , Cullumber Contractors agreed to construct a building at a contract price of $3,190,000. The total estimated construction costs would be $1,825,000 and the project would be finished in 2025 . Information relating to the costs and billings for this contract is as follows: Calculate the gross profit/ (loss) that should be recognized for 2023,2024 , and 2025 using the percentage completion method. (Enter negative amounts using either a negative sign preceding the number e.g. −45 or parentheses e.g. (45). Round percentage complete to 1 decimal place, e.g. 15.2% and final answers to 0 decimal places, e.g. 5,125.

Answer 1

• The GROSS PROFIT / LOSS that should be recognized for 2023 is:

$449, 710

• FOR 2024 it is:

$798, 430

• FOR 2025 it is:

$1, 365, 000

• Explanation MAKE A PLAN:

Calculate the percentage of completion for each year and then find the gross PROFIT / LOSS for each year using the percentage-completion method:

• SOLVE THE PROBLEM:

(1) - Calculate the tOTAL COST incurred for EACH year:

• FOR 2023:

600, 000

• FOR 2024:

1, 000, 000

• FOR 2025:

1, 225, 000

• (2) - Calculate the percentage of completion for each year:

For 2023:

(600, 000 / 1, 825, 000 ) * 100 = 32.9%

• FOR 2024:

(( 600, 000 + 1, 000, 000 ) / 1, 825, 000 ) * 100 = 87.7%

• FOR 2025:

100% (PROJECT COMPLETED)

• (3) - Calculate the Gross Profit / LOSS for each year using the percentage completion method:

FOR 2023:

(3, 190, 000 * 32.9%) - 600, 000 = $449, 710

• FOR 2024:

(3, 190, 000 * 87.7% ) - (600, 000 + 1, 000, 000 ) = $798, 430

• FOR 2025:

(3, 190, 000 * 100% ) - 1, 825, 000 = $1, 365, 000

• DRAW THE CONCLUSION:

THEREFORE:

• The GROSS PROFIT / LOSS that should be recognized for 2023 is:

$449, 710

• FOR 2024 it is:

$798, 430

• FOR 2025 it is:

$1, 365, 000

I hope this helps you!