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    Percentage-of-completion method and computation of GP

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    Hello,

    I keep getting confused on how to work this problem, can someone show me how to work this?

    Problem:
    A company uses the percentage-of-completion method of accounting. In 2007, The company began work on a contract it had received which provided for a contract price of $15,000,000.

    2007
    Costs incurred during the year $7,200,000
    Estimated costs to complete as of December 31 4,800,000
    Billings during the year 6,600,000
    Collections during the year 3,900,000

    What should be the gross profit recognized in 2007?

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    Solution Preview

    Contract revenue $15,000,000

    Costs incurred during the year $7,200,000 ...

    Solution Summary

    Please find the solution below:

    Contract revenue $15,000,000

    Costs incurred during the year $7,200,000
    Estimated costs to complete $4,800,000
    Total estimated contract costs $12,000,000

    Estimated profits $3,000,000

    Stage of completion 60%

    Gross profit - 2007
    Contract revenue $9,000,000
    Less: Contract costs $7,200,000
    Gross profit $1,800,000

    $2.49

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