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Percentage-of-completion method and computation of GP

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?

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

$2.19