Mann Construction Co uses the percentageofcompletion method

Mann Construction Co. uses the percentage-of-completion method of accounting. During 20X5, Mann contracts to build an apartment complex for Dan for $30mn. Mann estimates that total costs would amount to $22mn over the period of construction.
In connection with this contract, Mann incurs $3mn of construction costs during 20X5. Mann bills and collects $4mn from Dan in 20X5.
What amount should Mann recognize as gross profit for 20X5?
A.	$4,000,000
B.	$3,000,000
C.	$1,000,000
D.	$1,090,909
Fam Construction Company\'s contract requires the construction of a bridge in three years. The expected total cost of the bridge is $3mn, and Frame will receive $3.80mn for the project. The actual costs incurred to complete the project were $800,000, $900,000, and $1,300,000, respectively, during each of the three years. Progress payments received by Frame were $1,000,000, $1,200,000, and $1,600,000 in each year, respectively. Assuming that the percentage-of-completion method is used, what amount of gross profit should Frame report during the last year of the project?
A.	$800,000
B.	$586,667
C.	$346,667
D.	$453,333

Solution

Part 1

Correct Answer (D) $ 1090909

(A)

Total Estimated Cost

$ 22,000,000.00

(B)

Cost Incurred till 20X5

$     3,000,000.00

(C=B/A)

%of completion

13.64%

(D)

Total Contract Revenue

$ 30,000,000.00

(E=D*C)

Revenue to recognize

$     4,090,909.09

Less: Cost

$     3,000,000.00

Gross profit

$     1,090,909.09

Part 2

Correct Answer (C ) $ 346667.

Year 1

Year 2

Year 3

Contract Price

$ 3,800,000.00

$ 3,800,000.00

$ 3,800,000.00

Less- Estimated Cost

Cost to date

$      800,000.00

$ 1,700,000.00

$ 3,000,000.00

Cost To complete

$ 2,200,000.00

$ 1,300,000.00

$                       -  

Total Cost

$ 3,000,000.00

$ 3,000,000.00

$ 3,000,000.00

Gross Profit

$      800,000.00

$      800,000.00

$      800,000.00

Percentage Cpmplete

26.67%

56.67%

100.00%

Revenue

Total Revenue

$ 3,800,000.00

$ 3,800,000.00

$ 3,800,000.00

Percentage

26.67%

56.67%

100.00%

$ 1,013,333.33

$ 2,153,333.33

$ 3,800,000.00

Less-Revenue of Previous Year

$                       -  

$ 1,013,333.33

$ 2,153,333.33

Current year revenue

$ 1,013,333.33

$ 1,140,000.00

$ 1,646,666.67

Gross profit

Revenue

$ 1,013,333.33

$ 2,153,333.33

$ 3,800,000.00

Cost

$      800,000.00

$ 1,700,000.00

$ 3,000,000.00

Gross Profit

$      213,333.33

$      453,333.33

$      800,000.00

Less Gross Profit of previous year

$                       -  

$      213,333.33

$      453,333.33

Gross profit To be Recognised in Current Year

$      213,333.33

$      240,000.00

$      346,666.67

Part 1
Correct Answer (D) $ 1090909
(A)	Total Estimated Cost	$ 22,000,000.00
(B)	Cost Incurred till 20X5	$     3,000,000.00
(C=B/A)	%of completion	13.64%
(D)	Total Contract Revenue	$ 30,000,000.00
(E=D*C)	Revenue to recognize	$     4,090,909.09
	Less: Cost	$     3,000,000.00
	Gross profit	$     1,090,909.09