Question

E18-35 (LO5) EXCEL (Gross Profit on Uncompleted Contract) On April 1, 2017, Dougherty Inc. entered into a cost plus fixed fee contract to construct an electric generator for Altom Corporation. At the contract date, Dougherty estimated that it would take 2 years to complete the project at a cost of $2,000,000. The fixed fee stipulated in the contract is $450,000. Dougherty appropriately accounts for this contract under the percentage-of-completion method. During 2017, Dougherty incurred costs of $800,000 related to the project. The estimated cost at December 31, 2017, to complete the contract is $1,200,000. Altom was billed $600,000 under the contract. Dougherty appropriately accounts for this contract under the percentage-of-completion method.
Instructions:
Prepare a schedule to compute the amount of gross profit to be recognized by Dougherty under the contract for the year ended December 31, 2017.

Answer 1

Answer:

The gross profit under percentage-of-completion method is $180000 for the year ended 31st December 2017 as shown in the attached.

Explanation:

The formula for calculating gross profit under percentage-of-completion method is given as

Gross profit =costs incurred to date/total contract costs*contract total gross profit

Costs incurred to date =$800000

Total costs =$2000000

Hence gross profit % is =800000/2000000

                                       =40%

As a result 40% of the total gross profit of $450000 is due to be recognized now.

Find the attached for detailed computations.