This year, a contractor agrees to build a building for $2,000,000, which will be completed by the end of next year. The builder's cost is estimated to be $1,700,000. The actual costs this year are $800,000 and next year's actual costs are $800,000. If the tax rate is 20% and the interest rate is 10%, the look back interest for the percentage of completion method is

Question

Quizplus · Accepted Answer

The look back interest is the difference between the interest calculated using the percentage of completion method and the interest calculated using the completed contract method. In this case, the interest calculated using the percentage of completion method is $1,176 and the interest calculated using the completed contract method is $0. Therefore, the look back interest is $1,176.

This Year, a Contractor Agrees to Build a Building for $2,000,000