Early in 2021, Forest Ltd At the End of 2021, the Status of the Work

question 89

Multiple Choice

Early in 2021, Forest Ltd. signed a contract to construct a warehouse. Forest's management estimated the gross profit on the contract to be $740,000, as indicated by the following: $$\begin{array} { l | l | } \hline \text { Contract price } & \$ 3,500,000 \\\hline \text { Estimated costs } & 2,760,000 \\\hline \text { Estimated gross profit } & \$ 740,000 \\\hline\end{array}$$ At the end of 2021, the status of the work on the contract was as follows:
$$\begin{array} { | l | c | } \hline \text { Costs incurred to date } & \$ 1,350,000 \\\hline \text { Estimated costs to complete } & 1,650,000 \\\hline\end{array}$$ How much revenue can be recognized on this contract for 2021, assuming that Forest uses the
Percentage of completion basis for long-term construction contracts (round to nearest dollar) ?

• A)$333,000
• B)$863,333
• C)$1,575,000
• D)$1,711,957

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Definitions:

Straight-Line Depreciation

A method of calculating the depreciation of an asset, dividing the difference between its cost and salvage value evenly over its useful life.

Capital Budgeting

involves the evaluation and selection of long-term investments that are in line with the goal of maximizing the value of a firm.

Incremental Sales

The additional sales generated by a particular business action or decision, reflecting the net increase in sales due to that specific activity.

Operating Expenses

Expenses that relate to the day-to-day operations of a business, excluding costs associated with the production of goods.