Smile Operators Entered into a Contract to Build a Swimming

question 41

Multiple Choice

Smile Operators entered into a contract to build a swimming complex for $1,800,000. Construction commenced on July 1, 2020, with a planned completion date of December 31, 2022. A summary of the related accounting information is provided below: $$\begin{array} { | l | r | r | r | } \hline & \mathbf { 2 0 2 0 } & \mathbf { 2 0 2 1 } & \mathbf { 2 0 2 2 } \\\hline \text { Costs incurred during the year } & 400,000 & 500,000 & 650,000 \\\hline \text { Estimated costs to complete at year end } & 1,200,000 & 600,000 & 0 \\\hline \text { Billings during the year } & 360,000 & 440,000 & 1,000,000 \\\hline \text { Cash collections during the year } & 300,000 & 410,000 & 1,090,000 \\\hline\end{array}$$ How much gross profit would be recognized in 2021 if the company uses the completed contract method under ASPE?

• A)$0
• B)$120,000
• C)$220,000
• D)$250,000

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Definitions:

Divisional Structure

An organizational layout in which the company is divided into semi-autonomous units or divisions, each responsible for a particular business area or market segment.

Multidomestic Strategy

A strategy used by companies where they tailor their products or services to each country or market in which they operate, accommodating local preferences and conditions.

Product Development

The process of bringing a new product or service to market, from idea generation to commercialization.

Functional Organizational Structure

An organizational framework where the company is divided into departments based on their function, such as marketing, finance, or manufacturing.