Calculate the amount of gross profit

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Reference no: EM13148544

Muscle Construction signs a contract to build a classroom addition for Smallville High School. The total price for the addition is $800,000, and the initial cost estimate was $650,000. The project is expected to take 18 months to complete. The project was begun in 2006 and finished in 2007. Muscle Construction uses a calendar year for reporting purposes. The following details are from 2006 and 2007: For 2006: Cost incurred: $350,000, Billings: $400,000, Collections: $390,000, Estimated cost to complete: $350,000.

For 2007: Cost incurred: $280,000, Billings: $400,000, Collections: $350,000. Calculate the amount of gross profit Muscle Construction should recognize in 2006, using the percentage-of-completion method.

a) $85,000

b) $75,000

c) $50,000

d) $48,750

Reference no: EM13148544

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