Amount Of Gross Profit Muscle Construction 541523

Muscle Construction signs a contract to build a classroom addition for Smallville High School. The total price for the addition is $800,000, and the initial cost estimate was $650,000. The project is expected to take 18 months to complete. The project was begun in 2006 and finished in 2007. Muscle Construction uses a calendar year for reporting purposes. The following details are from 2006 and 2007: For 2006: Cost incurred: $350,000, Billings: $400,000, Collections: $390,000, Estimated cost to complete: $350,000. For 2007: Cost incurred: $280,000, Billings: $400,000, Collections: $350,000. Calculate the amount of gross profit Muscle Construction should recognize in 2007, using the completed-contract method.

a) $170,000

b) $157,250

c) $121,250

d) $120,000