Question

AAA has a contract to build a building for $100,000 with an estimated time to completion of three years. A reliable cost estimate for the project is $60,000. In the first year of the project, AAA incurred costs totaling $24,000. How much profit should AAA report at the end of the first year under the percentage-of-completion method and the completed-contract method?Percentage-of-completion : Completed-contract
a) $16,000 : $0
b) $16,000 : $40,000
c) $40,000 : $0

Answer 1

Answer:

a) $16,000 : $0

Explanation:

Expenses  incurred in the first year: $ 24,000.00

Estimated cost for the project: $ 60,000.00

Percentage of costs incurred: =24,000.00/ 60,000 x100

       = 40 perfect

Building estimated revenue=$ 100,000.00

40 % of 100,000.00= .4 x 100,000.00= 40,000.00

percentage of completion = first year revenues - first year expenses i.e. = revenue- expenses

  =$40,000- $24,000

  =$ 16,000.00

No profit will be reported in the first year using the completed contract method as the project is incomplete.