In Year 1 a Contractor Agrees to Build a Building

question 108

Multiple Choice

In year 1 a contractor agrees to build a building for $2,500,000 by the end of year 2.The builder's cost is estimated to be $1,800,000.The actual costs year 1 are $900,000 and year 2's actual costs are $1,100,000.Under the percentage of completion method year 2's gross profit is

• A)$150,000.
• B)$500,000.
• C)$700,000.
• D)$350,000.

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Definitions:

Note Payable

A written promise to pay a specified amount of money, usually with interest, at a future date; it is a type of liability on the balance sheet.

Bond Payable

A long-term liability representing borrowed funds that the company is obligated to repay to bondholders at a specified future date.

Unearned Rent

Income received by a landlord for rent payments ahead of the rental period, considered a liability until the period occurs.

Current Liabilities

Obligations or debts due within one year or within the normal operating cycle of a business, whichever is longer.