Classical Ltd. Began work in 2020 on a contract for $ 1,250,000. Other data are: $\quad \quad\quad \quad\quad \quad\quad \quad\quad \quad\quad \quad\quad \quad\quad \quad\quad \quad \quad\quad \quad\quad \quad\quad\quad \quad\quad \underline{2020}\quad \quad\quad \quad\underline{2021}$
$\text { Costs incurred to date }\ldots \ldots \ldots \ldots\ldots \ldots \ldots \ldots\ldots \ldots \ldots \ldots\ldots \ldots \$540,000\quad\quad \$335,000$
$\text { Estimated costs to complete as of December } \ldots \ldots \ldots \ldots \ldots \ldots360,000\quad\quad-$
$\text { 31 Billings to date}\ldots \ldots \ldots \ldots\ldots \ldots \ldots \ldots\ldots \ldots \ldots \ldots\ldots \ldots \ldots \ldots420,000\quad\quad 1,250,000$
$\text { Collections to date} \ldots \ldots \ldots\ldots\ldots\ldots \ldots \ldots \ldots\ldots \ldots \ldots \ldots\ldots \ldots \ldots 300,000\quad\quad1,000,000$
If Classical uses the completed-contract method, the gross profit to be recognized in 2021 is
A) $ 375,000.
B) $ 400,000.
C) $ 850,000.
D) $ 1,000,000.

Question

Classical Ltd. Began work in 2020 on a contract for $ 1,250,000. Other data are: $\quad \quad\quad \quad\quad \quad\quad \quad\quad \quad\quad \quad\quad \quad\quad \quad\quad \quad \quad\quad \quad\quad \quad\quad\quad \quad\quad  \underline{2020}\quad \quad\quad \quad\underline{2021}$
$\text { Costs incurred to date }\ldots \ldots \ldots \ldots\ldots \ldots \ldots \ldots\ldots \ldots \ldots \ldots\ldots \ldots \$540,000\quad\quad \$335,000$
$\text { Estimated costs to complete as of December } \ldots \ldots \ldots \ldots \ldots \ldots360,000\quad\quad-$
$\text { 31 Billings to date}\ldots \ldots \ldots \ldots\ldots \ldots \ldots \ldots\ldots \ldots \ldots \ldots\ldots \ldots \ldots \ldots420,000\quad\quad 1,250,000$
$\text { Collections to date} \ldots \ldots \ldots\ldots\ldots\ldots \ldots \ldots \ldots\ldots \ldots \ldots \ldots\ldots \ldots \ldots 300,000\quad\quad1,000,000$
 If Classical uses the completed-contract method, the gross profit to be recognized in 2021 is
A) $ 375,000.
B) $ 400,000.
C) $ 850,000.
D) $ 1,000,000.

Quizplus · Accepted Answer

Under the completed-contract method, gross profit is recognized only when the contract is completed. Since the estimated costs to complete as of December 2020 were $360,000 and there are no estimated costs to complete in 2021, it implies the contract was completed in 2021. The total contract value is $1,250,000, and the total costs incurred are $540,000 in 2020 plus $335,000 in 2021, totaling $875,000. The gross profit is the contract value minus the total costs, which is $1,250,000 - $875,000 = $375,000.

Classical Ltd Estimated costs to complete as of December ………………360,000−\text { Estimated costs to complete as of December } \ldots \ldots \ldots \ldots \ldots \ldots360,000\quad\quad- Estimated costs to complete as of December ………………360,000−

Classical Ltd $\text { Estimated costs to complete as of December } \ldots \ldots \ldots \ldots \ldots \ldots360,000\quad\quad-$