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8 October, 19:07

Haft Construction Co. has consistently used the input method based on costs incurred to measure progress toward completion of the project. 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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  1. 8 October, 22:31
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    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
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