Can someone explain where the 480 came from in this questions please? Or is this just an error?
During year 1, Mitchell Corp. started a construction job with a total contract price of $600,000. The job was completed on December 15, year 2. Additional data are as follows:
Actual costs incurred
Year 1 $225,000 Year 2 $255,000
Estimated remaining costs
Year 1 $225,000 Year 2 $0
Billed to customer
Year 1 $240,000 Year 2 $360,000
Received from customer
Year 1 $200,000 Year 2 $400,000
Under the completed-contract method, what amount should Mitchell recognize as gross profit for year 2?
Answer: $120,000
Explanation:
When a company uses the completed-contract method of accounting for construction projects, all revenue and expense recognition is deferred until the project is complete or substantially complete (ASC Topic 605). Also, note that neither customer billings nor payments on account are used to determine the revenue recognized under the completed-contract method (or under the percentage-of-completion method). Since the project was complete in year 2, Mitchell should recognize $120,000 ($600,000 – $480,000) in gross profit for year 2.
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