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 year 1 are $900,000 and year 2's actual costs are $1,100,000.Under the percentage of completion method year 2's gross profit is
A)$150,000.
B)$500,000.
C)$700,000.
D)$350,000.

Question

Quizplus · Accepted Answer

In year 1, 50% of the project is completed ($900,000/$1,800,000). The total profit is $700,000 ($2,500,000 - $1,800,000). Year 1's profit is $350,000 (50% of $700,000). In year 2, the remaining 50% is completed, so the profit is $350,000. Total profit for year 2 is $700,000 - $350,000 = $350,000.

In Year 1 a Contractor Agrees to Build a Building