In: Accounting
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 |
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)