Question

A contractor recognized $42,000 of gross profit on a contract at the end of year one of the contract under the percentage-of-completion method. At the end of year two, total estimated project cost exceeded the contract price by $100,000. What amount of loss is to be recognized for year two alone under the percentage-of-completion method (PC), and also under the completed-contract method (CC), had that method been used

Answer 1

Answer:

$100,000

Explanation:

Given:

Gross profit = $42,000

Extra expenses = $100,000

Extra expense made on the contract is the overall loss of the contractor.

Assuming there is no gross profit in the next two years and there is an extra expense of $100,000.

So, $100,000 is total loss under the percentage-of-completion method .

Therefore, the Combination of loss is $100,000 from both CC and PC methods.