Manson Construction Corp. has consistently used the percentage-of-completion method. In 2020, Manson started work on a $ 10,500,000 construction contract that was completed in 2021. The following information was taken from Manson's 2020 accounting records:
Billings to date..................................... $\$ 3,300,000$
Costs incurred.......................................$3,150,000$
Collections to date................................$2,100,000$
Estimated costs to complete..................$6,300,000$
Under the earnings approach, what amount of gross profit should Manson recognize in 2020 on this contract?

Question

Manson Construction Corp. has consistently used the percentage-of-completion method. In 2020, Manson started work on a $ 10,500,000 construction contract that was completed in 2021. The following information was taken from Manson's 2020 accounting records: 
Billings to date..................................... $\$ 3,300,000$
Costs incurred.......................................$3,150,000$
Collections to date................................$2,100,000$
Estimated costs to complete..................$6,300,000$
Under the earnings approach, what amount of gross profit should Manson recognize in 2020 on this contract?

Quizplus · Accepted Answer

The gross profit recognized in 2020 can be calculated using the percentage-of-completion method. First, calculate the total estimated costs ($3,150,000 + 6,300,000 = 9,450,000$). Then, find the percentage of completion ($3,150,000 / 9,450,000 = 1/3$ or 33.33%). The total estimated gross profit is the contract price minus total estimated costs ($10,500,000 - 9,450,000 = 1,050,000$). Finally, the gross profit recognized in 2020 is 1/3 of the total estimated gross profit ($1,050,000 * 1/3 = 350,000$).

Manson Construction Corp $3,300,000\$ 3,300,000$3,300,000 Costs Incurred 3,150,0003,150,0003,150,000 Collections to Date 2,100,0002,100,0002,100,000 Estimated Costs to Complete

Manson Construction Corp $\$ 3,300,000$ Costs Incurred $3,150,000$ Collections to Date $2,100,000$ Estimated Costs to Complete