Exhibit 18-1 In 2010, Alpha Construction began work on a contract with a price of $850, 000 and estimated costs of $595, 000.Data for each year of the contract are as follows:
$\begin{array}{llll}
&2010&2011&2012\
\text { Costs incurred chring the year } & \$ 238,000 & \$ 319,600 & \$ 105,000 \
\text { Estimated costs to complete } & 357,000 & 139,400 & -0- \
\text { Partial billings } & 260,000 & 210,000 & 380,000 \
\text { Collections } & 240,000 & 200,000 & 410,000
\end{array}$

- Refer to Exhibit 18-1.Under the percentage-of-completion method of revenue recognition, gross profit in 2010 would be
A)$102, 000
B)$260, 000
C)$255, 000
D)$425, 000

Question

Exhibit 18-1 In 2010, Alpha Construction began work on a contract with a price of $850, 000 and estimated costs of $595, 000.Data for each year of the contract are as follows:
$\begin{array}{llll}
&2010&2011&2012\
\text { Costs incurred chring the year } & \$ 238,000 & \$ 319,600 & \$ 105,000 \
\text { Estimated costs to complete } & 357,000 & 139,400 & -0- \
\text { Partial billings } & 260,000 & 210,000 & 380,000 \
\text { Collections } & 240,000 & 200,000 & 410,000
\end{array}$

- Refer to Exhibit 18-1.Under the percentage-of-completion method of revenue recognition, gross profit in 2010 would be
A)$102, 000
B)$260, 000
C)$255, 000
D)$425, 000

Quizplus · Accepted Answer

In 2010, the percentage of completion is calculated as costs incurred to date ($238,000) divided by total estimated costs ($595,000), which is 40%. The revenue recognized is 40% of the contract price ($850,000), which is $340,000. The costs incurred are $238,000, so the gross profit is $340,000 - $238,000 = $102,000.

Exhibit 18-1 in 2010, Alpha Construction Began Work on a Contract