Question

Mann Construction Co. uses the percentage-of-completion method of accounting. During 20X5, Mann contracts to build an apartment complex for Dan for $30mn. Mann estimates that total costs would amount to $22mn over the period of construction.
In connection with this contract, Mann incurs $3mn of construction costs during 20X5. Mann bills and collects $4mn from Dan in 20X5.
What amount should Mann recognize as gross profit for 20X5?
A.	$4,000,000
B.	$3,000,000
C.	$1,000,000
D.	$1,090,909
Fam Construction Company's contract requires the construction of a bridge in three years. The expected total cost of the bridge is $3mn, and Frame will receive $3.80mn for the project. The actual costs incurred to complete the project were $800,000, $900,000, and $1,300,000, respectively, during each of the three years. Progress payments received by Frame were $1,000,000, $1,200,000, and $1,600,000 in each year, respectively. Assuming that the percentage-of-completion method is used, what amount of gross profit should Frame report during the last year of the project?
A.	$800,000
B.	$586,667
C.	$346,667
D.	$453,333

Answer 1

Part 1
Correct Answer (D) $ 1090909
(A)	Total Estimated Cost	$ 22,000,000.00
(B)	Cost Incurred till 20X5	$     3,000,000.00
(C=B/A)	%of completion	13.64%
(D)	Total Contract Revenue	$ 30,000,000.00
(E=D*C)	Revenue to recognize	$     4,090,909.09
	Less: Cost	$     3,000,000.00
	Gross profit	$     1,090,909.09

Part 2
Correct Answer (C ) $ 346667.
	Year 1		Year 2	Year 3
Contract Price	$ 3,800,000.00		$ 3,800,000.00	$ 3,800,000.00
Less- Estimated Cost
Cost to date	$      800,000.00		$ 1,700,000.00	$ 3,000,000.00
Cost To complete	$ 2,200,000.00		$ 1,300,000.00	$                       -
Total Cost	$ 3,000,000.00		$ 3,000,000.00	$ 3,000,000.00
Gross Profit	$      800,000.00		$      800,000.00	$      800,000.00
Percentage Cpmplete	26.67%		56.67%	100.00%
Revenue
Total Revenue	$ 3,800,000.00		$ 3,800,000.00	$ 3,800,000.00
Percentage	26.67%		56.67%	100.00%
	$ 1,013,333.33		$ 2,153,333.33	$ 3,800,000.00
Less-Revenue of Previous Year	$                       -		$ 1,013,333.33	$ 2,153,333.33
Current year revenue	$ 1,013,333.33		$ 1,140,000.00	$ 1,646,666.67
Gross profit
Revenue	$ 1,013,333.33		$ 2,153,333.33	$ 3,800,000.00
Cost	$      800,000.00		$ 1,700,000.00	$ 3,000,000.00
Gross Profit	$      213,333.33		$      453,333.33	$      800,000.00
Less Gross Profit of previous year	$                       -		$      213,333.33	$      453,333.33
Gross profit To be Recognised in Current Year	$      213,333.33		$      240,000.00	$      346,666.67