Question:
Roebling Construction signed a $24 million contract on August 1, 2012, with the city of Candu to
construct a bridge over the Vine River. Roebling’s estimated cost of the bridge on that date was $18
million. The bridge was to be completed by April 2015. Roebling uses the percentage-of-completion
method for income recognition. Roebling’s fiscal year ends May 31. Data regarding the bridge contract
are presented in the schedule below.
The gross profit or loss recognized in the fiscal year ended May 31, 2013, from this bridge contract is
a. $6,000,000 gross profit.
b. $2,000,000 gross profit.
c. $3,000,000gross profit.
d. $1,000,000 gross profit.
Answer:
b. Given that one-third of all costs have already been incurred ($6,000,000), the company should
recognize revenue equal to one-third of the contract price, or $8,000,000. Revenues of $8,000,000
minus costs of $6,000,000 equals a gross profit of $2,000,000.
Roebling Construction signed a $24 million contract on August 1, 2012, with the city of Candu to
construct a bridge over the Vine River. Roebling’s estimated cost of the bridge on that date was $18
million. The bridge was to be completed by April 2015. Roebling uses the percentage-of-completion
method for income recognition. Roebling’s fiscal year ends May 31. Data regarding the bridge contract
are presented in the schedule below.
The gross profit or loss recognized in the fiscal year ended May 31, 2013, from this bridge contract is
a. $6,000,000 gross profit.
b. $2,000,000 gross profit.
c. $3,000,000gross profit.
d. $1,000,000 gross profit.
Answer:
b. Given that one-third of all costs have already been incurred ($6,000,000), the company should
recognize revenue equal to one-third of the contract price, or $8,000,000. Revenues of $8,000,000
minus costs of $6,000,000 equals a gross profit of $2,000,000.
