Does anyone else agrees with this answer and why? why is 2.2 added to 6.6? JME Construction always uses the percentage of completion method of recognizing revenue. During 2004 JME signs a contract in the amount of $10 million with the following data available: Costs incurred to date $2,200,000 Billings to date $2,000,000 Cash collected $1,750,000 Estimated costs to complete $6,600,000 How much gross profit should JME recognize for 2004? A) -$450,000. B) -$200,000. C) $1,133,333. D) $300,000. Your answer: C was incorrect. The correct answer was D) $300,000. stage of completion = 25% (2.2/(2.2+6.6)) revenue to be recognized = 0.25 × 10 million = 2.5 million gross profit = 2.5 million - 2.2 million = 300,000
it’s because the estimated cost to complete is what is left to be done and cost incurred to date is what was done, so you add the 2 to get the total cost for the project.
deja vu for me, I just did this prob 4 hrs ago
I think the wording is confusing I choose C as well Estimated cost to completion would have been better
I see. 6.6 is not the total estimated cost. thanks guys
Even if total cost = 6.6m then also, profit = 2.2/6.6 * 10=3.33 m. C is still incorrect?
Goel that is revenue you have to substract costs
Incurred cost = 2.2, costs to complete = 6.6. Total costs = 8.8. Total gross profit = 10 - 8.8 = 1.2. Gross profit recognized in 2004 = (2.2/8.8)*1.2 = .3 mil = 300,000