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Gleason Construction Enters into a Long-Term Fixed Price Contract to Build

question 71

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Gleason Construction enters into a long-term fixed price contract to build an office building for $27,000,000. In the first year of the contract Gleason incurs $8,000,000 of cost and the engineers determined that the remaining costs to complete are $25,000,000. How much gross profit or loss should Gleason recognize in Year 1 assuming the use of the completed-contract method?


Definitions:

American Put Option

A financial derivative that gives the holder the right, but not the obligation, to sell a specific amount of an underlying asset at a specified price within a given time frame.

Black-Scholes

A mathematical model used to calculate the theoretical price of European style options based on risk, time, and other factors.

Variance

A statistical measure of the dispersion or spread between numbers in a data set.

Call Option

A financial contract giving the option buyer the right, but not the obligation, to buy a specified quantity of an asset at a set price within a specified time.

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