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Cooper Construction Company had a contract starting April 2012, to construct a $9,000,000 building that is expected to be completed in September 2014, at an estimated cost of $8,250,000.At the end of 2012, the costs to date were $3,795,000 and the estimated total costs to complete had not changed.The progress billings during 2012 were $1,800,000 and the cash collected during 2012 was 1,200,000.
-For the year ended December 31, 2012, Cooper would recognize gross profit on the building of:

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Cooper Construction Company had a contract starting April 2012, to construct a $9,000,000 building that is expected to be completed in September 2014, at an estimated cost of $8,250,000.At the end of 2012, the costs to date were $3,795,000 and the estimated total costs to complete had not changed.The progress billings during 2012 were $1,800,000 and the cash collected during 2012 was 1,200,000.
-For the year ended December 31, 2012, Cooper would recognize gross profit on the building of:

Quizplus · Accepted Answer

Gross profit = Revenue - Cost of Goods Sold
Revenue = Progress Billings = $1,800,000
Cost of Goods Sold = Costs to Date = $3,795,000

Therefore, Gross Profit = $1,800,000 - $3,795,000 = -$1,995,000
However, this does not mean that the answer is D because gross profit cannot be negative. Instead, we have to recognize the loss by debiting the Construction in Progress account and crediting the Income Summary account. Therefore, the journal entry would be:

Construction in Progress           $1,995,000
Income Summary                   $1,995,000

Then, we divide the gross loss by the estimated total cost to complete to calculate the percentage of completion that we should recognize the loss.

Percentage of Completion = Total Costs to Date / Estimated Total Costs

Percentage of Completion = $3,795,000 / $8,250,000 = 46.09%

Finally, we can calculate the recognized gross profit using the following formula:

Recognized Gross Profit = Revenue x Percentage of Completion - Total Costs to Date

Recognized Gross Profit = $1,800,000 x 46.09% - $3,795,000 = $345,000

Therefore, the answer is B.

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