In Year 1,a Contractor Agrees to Build a Building for $2,500,000

question 74

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 for Year 1 are $900,000 and Year 2's actual costs are $1,300,000.Under the completed contract method the gross profit for Year 2 is

• A)$0.
• B)$300,000.
• C)$350,000.
• D)$700,000.

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Definitions:

Depreciation

The systematic allocation of the cost of a tangible asset over its useful life, reflecting the wear and tear, decay, or decline in value of the asset due to use and passage of time.

Accrual Basis

An accounting method that recognizes revenue when earned and expenses when incurred, regardless of when cash transactions occur.

Net Income

The total revenue of a company minus all expenses and taxes, representing the profit made during a specific period.

Unpaid Salaries

Salaries that have been earned by employees but have not been paid by the employer, often categorized as a liability on the balance sheet.