Hiser Builders, Inc.is using the cost-recovery method for a $5,600,000 contract that will take two years to complete.Data at December 31, 2012, the end of the first year, are as follows:
The gross profit or loss that should be recognized for 2012 is

Question

Quizplus · Accepted Answer

Under the cost-recovery method, no gross profit is recognized until the total estimated costs of the contract are covered. In this case, the total estimated costs are $5,600,000, so no gross profit can be recognized until that amount is reached. 
At the end of the first year, the costs incurred were $3,600,000 ($2,400,000 + $1,200,000). Therefore, $2,000,000 ($5,600,000 - $3,600,000) must still be incurred before any gross profit can be recognized. 
Since the contract price is $5,600,000 and no gross profit can be recognized until that amount is reached, the answer is a loss of $240,000 ($5,600,000 - $3,600,000 - $2,000,000). Therefore, the correct answer is B.