Question

AAA has a contract to build a building for $ 100,000 with an estimated time to completion of three years. A reliable cost estimate for the project is $ 60,000. In the first year of the project, AAA incurred costs totaling $ 24,000. How much profi t should AAA report at the end of the fi rst year under the percentage-of-completion method?

Answer 1

the profit that should be recorded is $16,000

Step-by-step explanation:

The computation of the profit that should be reported is shown below:

= (Incurred cost ÷ Estimation of the cost × Contract price) - (Incurred cost)

= ($24,000 ÷ $60,000 × $100,000) - ($24,000)

= $40,000 - $24,000

= $16,000

Hence, the profit that should be recorded is $16,000

We simply applied the above formula so that the correct value could come

And, the same is to be considered