Cooper Construction Company had a contract starting April 2010, to construct a $9,000,000 building that is expected to be completed in September 2012, at an estimated cost of $8,250,000. At the end of 2010, the costs to date were $3,795,000 and the estimated total costs to complete had not changed. The progress billings during 2010 were $1,800,000 and the cash collected during 2010 was 1,200,000.
For the year ended December 31, 2010, Cooper would recognize gross profit on the building of:
a $405,000
b $0
c $316,250
d $345,000
To determine the gross profit on the building for the year ended December 31, 2010, we need to calculate the total cost to complete the project and compare it with the revenue recognized up to that point.
The estimated total cost to complete the building was $8,250,000, and the costs to date at the end of 2010 were $3,795,000. This means that $3,795,000 was already spent, leaving $8,250,000 - $3,795,000 = $4,455,000 as the estimated costs to complete the project.
The progress billings during 2010 were $1,800,000, which is the revenue recognized during that period. However, it's important to note that the cash collected during 2010 was only $1,200,000. This means that $1,800,000 - $1,200,000 = $600,000 of revenue is still to be collected.
To calculate the gross profit, we subtract the costs spent to date from the revenue recognized: $1,200,000 (cash collected) - $3,795,000 (costs to date) = -$2,595,000.
Since there is a negative gross profit, the correct answer is option b) $0.