US CMA Part 1 · Chapter 1 · Question 9 of 23
Pinecrest Builders has a fixed-price contract for $5,000,000 that satisfies the criteria for revenue recognition over time. It measures progress using the cost-to-cost input method. In Year 1 it incurred costs of $1,200,000 and estimates total contract costs of $4,000,000. What gross profit should be recognized in Year 1?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: D) $300,000
Explanation
Progress = $1,200,000 / $4,000,000 = 30%. Revenue = 30% x $5,000,000 = $1,500,000. Gross profit = $1,500,000 - $1,200,000 = $300,000, which equals 30% of the total expected gross profit of $1,000,000.
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