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afroz
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Joined: 22 Sep 2011
Location: United States
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Posts: 76

Posted: 02 May 2012 at 00:33 \| IP Logged

Can Anyone help me to figure out this problem ? Thanks

During year 1, Mitchell Corp. started a construction job with a total contact price of $600,000. The job was completed on December 15, year 2. Additional data are as follows:

year1 Year2

Actual cost incurred 225,000 255,000

Estimated remaining cost 225,000 -

Billed to customer 240,000 360,000

Received from customer 200,000 400,000

Under US GAAP completed contract method, what amount should Mitchell recognize as gross profit for Year 2?

a. $45,000

b. $72,000

c. $80,000

d. $120,000

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sharmin afroz

nk1001
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Joined: 18 Feb 2012
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Posted: 02 May 2012 at 10:49 \| IP Logged

What is the answer of this question? I come up with a
profit of $120K. Please let me know if I am right

afroz
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Joined: 22 Sep 2011
Location: United States
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Posts: 76

Posted: 02 May 2012 at 15:03 \| IP Logged

yaa you are right its 120k, but can u please explain me how you find out that ...?...Thanks

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sharmin afroz

nk1001
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Joined: 18 Feb 2012
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Posted: 02 May 2012 at 17:41 \| IP Logged

This is how I did the problem:

Year 1
Contract Price: 600,000
Less Total Cost: 450,000
Gross Profit: 150,000
where 450,000 is (Actual Cost -> 225,000 + Prior Period
Cost -> 0 + Estimated remaining cost -> 225,000)

Percent of Completion:
Costs to date/Total Costs
225,000 / 450,000 = 50%

Gross Profit to be recognized in year 1: 50% x 150,000 =
75,000 but we won't recognize this since we are using
completed-contract method

Year 2
Contract Price: 600,000
Less Total Cost: 480,000
Gross Profit: 120,000
where 480,000 is (Actual Cost -> 255,000 + Prior Period
Cost -> 225,000 + Estimated remaining cost -> 0)

Percent of Completion:
Costs to date (Yr 1 & 2)/Total Costs
480,000 / 480,000 = 100%

Gross Profit to be recognized in year 2: 100% x 120,000 =
120,000

afroz
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Joined: 22 Sep 2011
Location: United States
Online Status: Offline
Posts: 76

Posted: 02 May 2012 at 20:33 \| IP Logged

@nk1001, Thank you very much for your time and nice explanation.. :)

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sharmin afroz

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