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Eilert Construction Company had a contract starting April 2011, to construct a $15,000,000 building that is expected to be completed in September 2012, at an estimated cost of $13,750,000.At the end of 2011, the costs to date were $6,325,000 and the estimated total costs to complete had not changed.The progress billings during 2011 were $3,000,000 and the cash collected during 2011 was $2,000,000.Eilert uses the percentage-of-completion method.
-For the year ended December 31, 2011, Eilert would recognize gross profit on the building of

Question

Quizplus · Accepted Answer

To determine the gross profit for 2011, we need to calculate the percentage of completion based on costs incurred in 2011 and the estimated total costs. The percentage of completion is:
($6,325,000 costs incurred in 2011) / ($13,750,000 estimated total costs) = 0.46 or 46%
Since progress billings during 2011 were $3,000,000, the revenue recognized for 2011 is 46% x $15,000,000 contract price = $6,900,000. 
The gross profit is then calculated as the revenue recognized ($6,900,000) minus costs incurred to date ($6,325,000) = $575,000. 
Therefore, the correct answer is C.

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