Haft Construction Co. has consistently used the percentage-of-completion method. On January 10, Year 3, Haft began work on a $3 million construction contract. At the inception date, the estimated cost of construction was $2,250,000. The following data relate to the progress of the contract:

Gross profit recognized at 12/31/Yr 3 $ 300,000

Costs incurred 1/10/Yr 3 through 12/31/Yr 4 1,800,000

Estimated cost to complete at 12/31/Yr 4 600,000

In its income statement for the year ended December 31, Year 4, what amount of gross profit should Haft report?

Question

Dexter Mclean

Business

23 December, 15:06

Haft Construction Co. has consistently used the percentage-of-completion method. On January 10, Year 3, Haft began work on a $3 million construction contract. At the inception date, the estimated cost of construction was $2,250,000. The following data relate to the progress of the contract:

Gross profit recognized at 12/31/Yr 3 $ 300,000

Costs incurred 1/10/Yr 3 through 12/31/Yr 4 1,800,000

Estimated cost to complete at 12/31/Yr 4 600,000

In its income statement for the year ended December 31, Year 4, what amount of gross profit should Haft report?

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Answers (1)

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Nasir Blevins · Answer 1

The answer is: Halt should report $150,000 as gross profit

Explanation:

Halt recognized $300,000 as gross profit for Yr 3.

By December 31, Yr 4, Halt had completed 75% of the construction project: ($1,800,000 spent / $1,800,000 + $600,000 cost to complete) x 100 = 75%

Halt anticipated $600,000 as gross profit ($3,000,000 contract price - $2,400,000 expected costs).

To determine the gross profit for Yr 4:

gross profit Yr 4 = ($600,000 total gross profit x 75% completion rate) - $300,000 previously recognized gross profit = $450,000 - $300,000 = $150,000