Under the percentage of completion method, $400 of profit has been recognized in prior years on a project with a contract price of $5,000. Data available as follow: Total cost incurred till date = $3,000
Estimated costs remaining at end of current year = $2,500
What profit or loss is recognized in the current year?
A) $900 loss
B) $400 loss
C) $500 loss
D) no profit or loss

Question

Quizplus · Accepted Answer

The total estimated cost of the project is $3,000 (incurred) + $2,500 (remaining) = $5,500. Since the contract price is $5,000, the project will result in a total loss of $500. Since $400 profit was recognized in prior years, the current year will recognize a $900 loss ($500 total loss + $400 reversal of prior profit).

Under the Percentage of Completion Method, $400 of Profit Has