Question

A construction company entered into a fixed-price contract to build an office building for $20 million. Construction costs incurred during the first year were $6 million and estimated costs to complete at the end of the year were $9 million. The company recognizes revenue over time according to percentage of completion. How much revenue and gross profit or loss will appear in the company’s income statement in the first year of the contract? (Enter your answer in whole dollars.)

Answer 1

$2 million or $2,000,000

Step-by-step explanation:

The computation of the revenue and gross profit or loss will appear in the company’s income statement in the first year is shown below:

= revenue recognized - cost incurred

The Total cost is

= $6 + $9

= $15

And, the revenue recognized is

= $6 ÷ $15 × $20

= $8

So, the gross profit is

= $8 - $6

= $2

hence, the gross profit is $2 million