i don't understand this question. i understand there is 8000 period loss but the question is asking the gross profit recognized? not the loss. so shouldnt the answer be zero?
Tag Question
A contractor recognizes $42,000 of gross profit on a contract at the end of year one of the contract under the percentage-of-completion method. At the end of year two, the gross profit to be recognized for both years together is $34,000. The total anticipated gross profit on the project estimated at the end of year two is $78,000. What amount of gross profit is to be recognized for year two alone?
A. $78,000
B. $34,000
C. $8,000
D. $0
Correct!
This is an example of a single-period loss on a profitable contract. The loss for year two is computed as: $34,000 gross profit through year two – $42,000 gross profit year one = – $8,000 single-period loss. The loss “reverses” $8,000 of the $42,000 gross profit recognized in year one.
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