Question:
Franklin Construction entered into a fixed-price contract to build a freeway-connecting ramp for $30
million. Construction costs incurred in the first year were $16 million and estimated remaining costs to
complete at the end of the year were $17 million. How much gross profit or loss will Franklin recognize
the first year applying the percentage-of-completion method? Applying the completed contract method?
Answer:
The anticipated loss of $3 million ($30 million contract price less total estimated costs of $33 million)
must be recognized in the first year applying either method.
Franklin Construction entered into a fixed-price contract to build a freeway-connecting ramp for $30
million. Construction costs incurred in the first year were $16 million and estimated remaining costs to
complete at the end of the year were $17 million. How much gross profit or loss will Franklin recognize
the first year applying the percentage-of-completion method? Applying the completed contract method?
Answer:
The anticipated loss of $3 million ($30 million contract price less total estimated costs of $33 million)
must be recognized in the first year applying either method.
