Steinman Construction Company uses the percentage-of-completion method for long-term construction contracts.The company has a project with a contract price of $7,000 on which $600 of gross profit has been recognized in prior years.Information for the current year is as follows:

What is the loss that Steinman should recognize in the current year?
A)$600
B)$800
C)$1,400
D)No loss should be recognized.

Question

Steinman Construction Company uses the percentage-of-completion method for long-term construction contracts.The company has a project with a contract price of $7,000 on which $600 of gross profit has been recognized in prior years.Information for the current year is as follows:

What is the loss that Steinman should recognize in the current year?

What is the loss that Steinman should recognize in the current year?
A)$600 
B)$800 
C)$1,400 
D)No loss should be recognized.

Quizplus · Accepted Answer

Based on the information given, the total estimated cost of the project is $7,800 ($6,000 + $1,800). However, only $6,000 of costs have been incurred, indicating that there is an expected loss of $1,800 ($7,800 - $6,000). Since $600 of gross profit has already been recognized in prior years, the loss that Steinman should recognize in the current year is $1,400 ($1,800 - $600). Therefore, the correct answer is C.

Steinman Construction Company Uses the Percentage-Of-Completion Method for Long-Term Construction