Question

Blossom Construction Company uses the percentage-of-completion method of accounting. In 2021, Blossom began work on a contract it had received which provided for a contract price of $47500000. Other details follow:

2021
Costs incurred during the year $22000000
Estimated costs to complete as of December 31 16000000
Billings during the year 21500000
Collections during the year 10500000
What should be the gross profit recognized in 2021?

Answer 1

Blossom Construction Company

The gross profit that should be recognized in 2021 is:

= $5,500,000.

Step-by-step explanation:

a) Data and Calculations:

Contract price = $47,500,000

Others:

Billings during the year $21,500,000

Collections during the year $10,500,000

Costs incurred during the year $22,000,000

Estimated costs to complete as of December 31 $16,000,000

Total estimated costs to complete = $38,000,000 ($22 + $16 million)

2021 Revenue = $22/$38 * $47.5 = $27,500,000

Costs incurred during the year = 22,000,000

Gross profit to be recognized = $5,500,000

b) The percentage-of-completion method of accounting for long-term contract measures the percentage of costs incurred in each year against the contract price to determine the revenue which can be attributed to the year.