This year, Hamilton, a local manufacturer of off- shore drilling platforms, entered into a contract to construct a drilling platform that will be placed in the North Atlantic Ocean. The total contract price is $5,000,000, and Hamilton estimates the total construction cost at $3,000,000. Actual costs incurred this year are $600,000. If Hamilton uses the percentage of completion method, the gross profit for this year is

Question

Quizplus · Accepted Answer

The percentage of completion method recognizes revenue and gross profit based on the progress of the construction. The percentage of completion is $600,000 / $3,000,000 = 20%. Therefore, the revenue recognized is 20% of $5,000,000 = $1,000,000. The cost recognized is $600,000, so the gross profit is $1,000,000 - $600,000 = $400,000.

This Year, Hamilton, a Local Manufacturer of Off- Shore Drilling