Question
In: Accounting
Red Builders agrees to construct a new building for Blue Co. for a total contract price...
Red Builders agrees to construct a new building for Blue Co. for
a total contract price of $6,000,000. The estimated construction
costs at inception was $4,000,000. The construction project was
completed after two years. Below are the actual costs for years 1
and 2:
| Description | Cumulative | |
| Year 1 | Year 2 | |
| Cost incurred to date | 1,200,000 | 2,500,000 |
| Estimated additional costs to complete | 3,600,000 | 2,100,000 |
| Billings | 1,050,000 | 2,300,000 |
| Cash Collections | 1,000,000 | 1,900,000 |
Red has determined that this contract qualifies for revenue
recognition over time (as opposed to upon completion). As a result,
Red Builders should have recognized profit at the end of year 1 in
the amount of:
Multiple Choice
-
$1,050,000
-
$600,000
-
$1,000,000
-
$300,000
Solutions
Expert Solution
Calculate profit at the end of year 1
| Year 1 | |
| Cost incurred to date | 1200000 |
| Estimated additional costs to complete | 3600000 |
| Total Cost | 4800000 |
| Percentage completion | 25% |
| Revenue (6000000*25%) | 1500000 |
| Cost | 1200000 |
| Profit | 300000 |
So answer is d) $300000
ekkarill92 answered 3 years agoRelated Solutions
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