Question

In: Accounting

Reedy Builders, Inc. is using the completed-contract method for a $12,500,000 contract that will take three...

Reedy Builders, Inc. is using the completed-contract method for a $12,500,000 contract that will take three years to complete. Data at December 31, 2015, the end of the first year, are as follows:

Costs incurred to date           $6,240,000
Estimated costs to complete 6,660,000
Billings to date                         5,920,000
Collections to date             5,540,000

The gross profit or loss that should be recognized for 2015 is

Solutions

Expert Solution

Answer with explanation:

The gross loss that should be recognized by Reedy Builders, Inc. for 2015 is $400,000.

Under completed contracts method the gross profit or loss to be recognised is ascertained by,

Gross profit or loss = Contract price - (Cost incurred to date + Estimated costs to complete)

Contract price = $12,500,000
Costs incurred to date = $6,240,000
Estimated costs to complete = $6,660,000

Gross profit or loss to be recognised = $12,500,000 - ($6,240,000 + $6,660,000) = $400,000 (loss)


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