Question: PercentageofCompletion Method accounting, additional, available, completed, following

mfleming1983

In 2004, Shopwise Company (SC) began work on a construction contract for Avdo Corporation. The total contract price was of $1,000,000. SC is wondering what the financial statement effects will be if it uses the percentageofcompletion method versus the completed contract method of accounting. The following additional data are available (assume that year ends on December 31):
Estimated costs to complete as of December 31: $450,000
Costs incurred during the year: 250,000
Billings during the year: 200,000
Cash collections during the year: 200,000
Determine the gross profit SC will recognize in 2004 using the percentageofcompletion method of accounting.
Answer: $107,143
Help please, thanks!

Micholien

Current period gross profit= (costs to date/current contract cost completion)*contract gross profit profit priory recognized
Gross profit= (250,000/(250,000+450,000))*(1,000,000450,000250,000)0=0.35714*300K=107,142
8571~107,143

ogoluwa

Total Contract = 1,000,000
Total Costs = 450,000 + 250,000 = 700,000
Profit = 300,000
Cost in 2004 = 250,000
Cost in 2004/Total Costs = 250,000/700,000 = .357
.357*300,000 = 107,143

Kiakaha

allright,
you have 450000 incurred already. you add the cost of the current year. so 450000 + 250000= 700000 this is the total cost so far. 250000 of the year/ 700000 total cost= .357
you will see the assets at 1000000. so the profit is 1000000700000= 300000*.357= 107143

ShooterMcCFA

Thanks everyone!