Mill Construction Co. uses the percentage-of-completion method of accounting. During 20X5, Mill contracts to build an apartment complex for Drew for $20mn. Mill estimates that total costs would amount to $16mn over the period of construction. In connection with this contract, Mill incurs $2mn of construction costs during 20X5. Mill bills and collects $3mn from Drew in 20X5.What amount should Mill recognize as gross profit for 20x5?

$500,000

Explanation:

The difference between the contract amount and cost incurred is the profit in this case.

Profit from the project = $20mn-$16mn

=$4mn

In the above mentioned project only 12.5% complete at the end of 20X5 ($2mn/$16mn). Total gross profit through the end of 20X5 is therefore

=$4mn x 12.5%

=$500,000

The $500,000 amount is the proportion of completion applied to the total contract profit of $4mn. This is the beginning year of contract so there is no previous profits or expenses that needs to be adjusted. The entire $500,000 gross profit is recognized in 20X5.

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1) the stages a new product goes through from beginning to end, i.e., the stages that a product passes through from introduction through growth, maturity, and decline. 2) the time from initial research and development to the time at which sales and support of the product to customers are withdrawn. 3) the period of time during which a product can be produced and marketed profitably.

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