EAP-5 Ruiz Construction Company currently has one long-term construction project.The project has a contract price of $140,000,000, with total estimated costs of $100,000,000.Ruiz appropriately uses the percentage-of-completion method. After 2 years of construction, thefollowing costs have been accumulated.Actual cost incurred, Year 1Total estimated cost remaining after Year 1Actual cost incurred, Year 2Total estimated cost remaining after Year 2$30,000,00070,000,00050,000,00020,000,000 PrinciplesInstructionsDetermine the gross profit for each of the first 2 years of the construction contract.

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FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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EAP-5 Ruiz Construction Company currently has one long-term construction project.
The project has a contract price of $140,000,000, with total estimated costs of $100,000,000.
Ruiz appropriately uses the percentage-of-completion method. After 2 years of construction, the
following costs have been accumulated.
Actual cost incurred, Year 1
Total estimated cost remaining after Year 1
Actual cost incurred, Year 2
Total estimated cost remaining after Year 2
$30,000,000
70,000,000
50,000,000
20,000,000

Principles
Instructions
Determine the gross profit for each of the first 2 years of the construction contract.

Expert Solution

Step 1

Lets understand the basics.

In percentage of completion method, revenue gets recorded based on the percentage of completion. Percentage of completion gets calculated by considering cost incurred and estimated cost to be incurred for completion of the project.

Percentage of completion = (Cost incurred/(Cost incurred + Estimate cost to complete the project)) * 100

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