In Year 1,a contractor agrees to build a building for $2,500,000 by the end of year 2.The builder's cost is estimated to be $1,800,000.The actual costs in Year 1 are $900,000 and Year 2's actual costs are $1,300,000.Under the completed contract method,the gross profit for Year 1 is
A)$0.
B)$300,000.
C)$350,000.
D)$700,000.

Question

Quizplus · Accepted Answer

Under the completed contract method, gross profit is recognized only when the contract is completed. Therefore, no gross profit can be recognized in Year 1, even if actual costs are less than the estimated costs. The gross profit of $700,000 will be recognized in Year 2 when the contract is completed.

In Year 1,a Contractor Agrees to Build a Building for $2,500,000