Gleason Construction enters into a long-term fixed price contract to build an office building for $20,000,000.In the first year of the contract Camey incurs $6,000,000 of cost and the engineers determined that the remaining costs to complete are $15,000,000.How much gross profit or loss should Gleason recognize in Year 1 assuming the use of the completed-contract method?
A)$1,000,000 loss
B)$1,000,000 profit
C)$0
D)$350,000 loss

Question

Quizplus · Accepted Answer

Under the completed-contract method, no profit or loss is recognized until the contract is completed. However, if a loss is expected, it must be recognized immediately. The total estimated cost is $21,000,000 ($6,000,000 incurred + $15,000,000 remaining), which exceeds the contract price of $20,000,000, resulting in a $1,000,000 loss.

Gleason Construction Enters into a Long-Term Fixed Price Contract to Build