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why is the answer not 22500?? the loss was estimated directly instead of finding gross profit like part 1. why?
The conservative principal of accounting states that we should always account for a loss in the full amount. In this case, we estimate a loss of $20k and must account for that in this period, regardless of how much is completed. Even if the example was changed to $40k completed with $280k estimated to finish, we would still recognize the same $20k loss.