Barr Corp. started a long-term construction project in 20X0. The following data relate to this project: Contract price $4,200,000 Costs incurred in 20X0 $1,750,000 Estimated costs to complete $1,750,000 Progress billings $900,000 Collections on progress billings $800,000 The project is accounted for by the percentage of completion method of accounting. In Barr's 20X0 income statement, what amount of gross profit should be reported for this project?

The correct answer is $350,000

Explanation:

Contract price = $4,200,000

Costs incurred = $1,750,000

Estimated costs to complete = $1,750,000

Progress billings = $900,000

Collections on progress billings = $800,000

Contract price - total estimated cost

$4,200,000 - ($1,750,000 + $1,750,000)

= $4,200,000 - $3,500,000

= $700,000

one-half of the estimated costs of this construction project were incurred

$1,750,000 : ($1,750,000 + $1,750,000)

= $1,750,000 : $3,500,000

= 0.5

In Barr's 20X0 income statement, what amount of gross profit should be reported for this project?

$700,000 x 0.5 = $350,000

$350,000 should be reported as gross profit for the 20X0 income statement.