Beaver Dam Builders Inc.(BDBI) has collected the following information about a dam it is building: costs to date $300,000, estimated total costs $1,200,000, estimated total revenues $1,600,000.If BDBI has collected $200,000 to date uses the cost-recovery method to recognize revenue, how much gross profit (loss) related to the project have they recognized to date?

Question

Quizplus · Accepted Answer

Under the cost-recovery method, revenue is recognized only when the costs incurred are recovered. Since BDBI has collected $200,000 to date but has incurred costs of $300,000, it has not yet recovered its costs. Therefore, no gross profit related to the project would be recognized to date, leading to the correct answer being $0.