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10 February, 15:29

Franklin Construction entered into a fixed-price contract to build a freeway-connecting ramp for $36 million. Construction costs incurred in the first year were $26 million and estimated remaining costs to complete at the end of the year were $18 million.

How much gross profit or loss will Franklin recognize in the first year if it recognizes revenue over time according to percentage of completion method?

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  1. 10 February, 15:34
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    Loss of $4.76 will be recognized.

    Explanation:

    Percentage of completion = 26 / (26+18) = 59%

    Contract price=$36*59%=$21.24

    Loss recognized=Revenue-Costs incurred=$21.24-$26 = ($4.76) million
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