Question

In early 20X1, Textron Inc. entered into an agreement with Scantech Ltd. for the construction of a new office building. Construction is expected to take three years to complete. The initial total estimated cost of the building was $28 million, and the price of the contract was set at $38 million. At December 31, 20X1, the total cumulative cost incurred was $18 million. Due to increasing costs of materials, the total estimated cost of the project at the end of 20X1 was $31 million. By the end of the 20X2 fiscal year, an additional $9 million of costs was incurred. At December 31, 20X2, the total estimated cost of the project remained the same as at December 31, 20X1.

What amount should Textron recognize as gross profit (the profit element) for the December 31, 20X2, fiscal year?

A) $2.0 million
B) $3.2 million
C) $4.0 million
D) $6.1 million

Answer 1

ANSWER
Explanation :
Calculation Textron recognize as gross profit (the profit element) for the December 31, 20X2, fiscal year
Year	Actual cost incurred (A)	Total cost incurred till date (B)	Total estimated Cost ( C )	% of completion (D) (B/C)	Contract Price	Total Revenue to be recognized (F) (E * D)	Revenue for current period (G)	Gross Profit (H) (G-A)
					(E)
20X1	$                  18	$                  18	$                  31	58.06%	$                  38	$                  22	$                  22	$                    4
20X2	$                    9	$                  27	$                  31	87.10%	$                  38	$                  33	$                  11	$                    2
So, the Correct option is A) $2 million