Question

Shumpert, Inc., entered into a contract that was to take two years to complete, with an estimated cost of $2,360,000. The contract price was $3,304,000. Costs of the contract for 2021, the first year, totaled $1,770,000. If required, round any division to two decimal places and round your final answers to the nearest dollar. a. What was the gross profit reported by the percentage of completion method for 2021

Answer 1

To calculate the gross profit reported by the percentage of completion method for 2021, we need to determine the percentage of completion for the year and then calculate the gross profit based on that percentage.

The percentage of completion is determined by dividing the costs incurred in 2021 by the estimated total costs of the project. In this case, the costs incurred in 2021 were $1,770,000, and the estimated total costs are $2,360,000.

Percentage of Completion = (Costs incurred in 2021 / Estimated total costs) * 100
Percentage of Completion = ($1,770,000 / $2,360,000) * 100
Percentage of Completion = 74.79%

Now, we can calculate the gross profit reported for 2021:

Gross Profit = (Percentage of Completion * Contract Price) - Costs incurred in 2021
Gross Profit = (74.79% * $3,304,000) - $1,770,000
Gross Profit = $2,470,263.16 - $1,770,000
Gross Profit = $700,263.16

Therefore, the gross profit reported by the percentage of completion method for 2021 is approximately $700,263.