Use the Following Information for the Following Questions:
Folk Construction

question 66

Multiple Choice

Use the following information for the following questions:
Folk Construction Corp. began operations in 2020. Construction activity for 2020 is shown below. Folk uses the completed-contract method.
$\begin{array}{c}\begin{array}{c}\\\\\underline{ \text { Contract}}\\1 \\2 \\3\end{array}\begin{array}{c}\\\text {Contract}\\\underline{ \text {Price}}\\\$ 1,280,000 \\ 1,440,000 \\1,320,000 \end{array}\begin{array}{c}\text {Billings}\\\text {Through}\\\underline{12 / 31 / 20 }\\\$ 1,260,000 \\600,000 \\760,000\end{array}\begin{array}{c}\text {Collections}\\\text {Through Costs to}\\\underline{12 / 31 / 20 }\\ \$ 1,040,000 \\400,000 \\700,000\end{array}\begin{array}{c}\text {Estimated}\\\text {Costs to}\\\underline{12 / 31 / 20}\\\$ 860,000\\328,000\\900,000\end{array}\begin{array}{c}\\\\\underline{ \text {Complete}}\\-\\\$ 752,000 \\480,000\end{array}\end{array}$

-Which of the following should be shown on the income statement for 2020 related to Contract 1?

• A) gross profit, $ 180,000
• B) gross profit, $ 240,000
• C) gross profit, $ 400,000
• D) gross profit, $ 420,000

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Definitions:

CVP Analysis

Cost-Volume-Profit Analysis, a method used in managerial accounting to understand the impact of varying levels of costs and volume on operating profit.

Variable Cost

Expenses that vary directly with the amount of products or services a company generates.

Fixed Costs

Costs that remain constant regardless of a company's level of activity, including expenses like rent, salaries, and insurance.

Profit

The financial gain made in a transaction or operation, calculated as the difference between revenue and expenses.