Gleason Construction enters into a long term fixed price contract to build an office building for $28,000,000. In the first year of the contract Gleason incurs $5,000,000 of cost and the engineers determined that the remaining costs to complete are $18,000,000.

How much gross profit or loss should Gleason recognize irn Year 1 assuming the use of the completed - contract method?

A. $178,571 loss

B, SO profit

C. $5,000,000 loss

D. $2,500,000 profit

Question

Business

Nugget

11 October, 19:18

Gleason Construction enters into a long term fixed price contract to build an office building for $28,000,000. In the first year of the contract Gleason incurs $5,000,000 of cost and the engineers determined that the remaining costs to complete are $18,000,000.

How much gross profit or loss should Gleason recognize irn Year 1 assuming the use of the completed - contract method?

A. $178,571 loss

B, SO profit

C. $5,000,000 loss

D. $2,500,000 profit

+3

Answers (2)

Know the Answer?

Delaney · Answer 1

B, $0 profit

Explanation:

Under completed contract method the business postponed all the revenues and expenses associated with the contract until the completion of the contract even if they receive / pay the cash for contract transactions.

In this case no profit and expense will be recognized until the project Completed. So, correct option is B, $0 profit.

Madison Chung · Answer 2

Option B,$0 profit is the correct answer.

Explanation:

Using the completed-contract method in contract costing implies that all the revenue as well as the associated contract costs are recognized at the end of the contract period.

Specifically, Gleason construction in the process of constructing, hence no costs and revenue can be recognized, they are deferred to the completion date of the contract.

The correct option based above explanation is B,$0 profit