Question 1

A company uses the percentage-of-completion method (cost-to-cost) for a long-term construction contract.
Contract Price: $1,000,000.
Year 1 Data:
- Costs incurred: $200,000
- Estimated costs to complete: $600,000
- Billings: $150,000
- Collections: $100,000

What is the Gross Profit recognized in Year 1?

Accepted Answer

1. Calculate % Complete = Incurred / (Incurred + Estimated Remaining). 2. Calculate Total Expected Profit = Price - Total Estimated Cost. 3. Profit to Date = % * Total Profit. 4. Subtract prior years (if any).

Question 2

What mistakes do candidates make on this CPA question?

Accepted Answer

Using billings instead of costs for % completion.

How to approach this question

Full Answer

Common mistakes

Practice the full CPA FAR Practice Exam 5

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