Question
In 2010, Concrete Inc. began a three year construction contract for $3,500,000. Cement uses the percentage-of-completion...
In 2010, Concrete Inc. began a three year construction contract for $3,500,000. Cement uses the percentage-of-completion method. The income to be recognized each year is based on the proportion of costs incurred to total estimated costs for completing the contract. The financial statement presentation relating to this contract for calendar 2010 follow:
| Statement of Financial Position | |
| Current Assets: | |
| Accounts receivable | $150,000 |
| Contract asset/liability | 105,000 |
| (Contract cost $425,000 less Billings of $320,000) | |
| Income Statement | |
| Income (before tax) on the contract recognized in 2010 | $105,000 |
What was the initial estimated gross profit on this contract?
a. $650,204
b. $405,231
c. $381,430
d. $864,703
Answers
Gross Profit % = Income Recogined /contract cost =105000/425000 24.7059% Therfore, Intitial estimated contract gross profit =$3500000 *24.7069% =$864703 Therefore the option D is corect.
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