Question

Horner Construction Co. uses the percentage-of-completion

method. In 2018, Horner began work on a contract for

$22,000,000; it was completed in 2019. The following cost data

pertain to this contract for the year-ended 2018... Cost incurred

during the year: $7,800,000... Estimated costs to complete:

$5,200,000. The following cost data pertain to this contract for the

year-ended 2019... Cost incurred during the year: $5,600,000...

Estimated costs to complete: n/a. If the completed-contract method

of accounting was used, the amount of gross profit (loss)to be

recognized for years 2018 and 2019 would be

a. 2018: $9,000,000... 2019: $ 0

b. 2018: $8,600,000... 2019: ($400,000)

c. 2018: $ 0... 2019: $8,600,000

d. 2018: $ 0... 2019: $9,000,000

Answer 1

The completed-contract method recognise the profit or loss only on completion of the project. Hence in the year 2018 no profit or loss will be recognised as the project is not completed. In the year 2019, project is completed, profit or loss to be recognised:

                                     Price of the Contract = 22,000,000

Less: cost incurred (7,800,000 + 5,600,000) = 13,400,000

                                                            Profit = 8,600,000

So, the option c is right.