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 $1,300,000. Under the completed contract method the gross profit for year 2 is

Question

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Under the completed contract method, revenue and expenses are recognized only when the contract is completed. The total revenue is $2,500,000 and the total cost is $2,200,000 ($900,000 + $1,300,000), resulting in a gross profit of $300,000 for year 2.

In Year 1 a Contractor Agrees to Build a Building