RE2 Inc. entered into a contract to install a pipeline for a fixed price of $2,215,000. JRE2 recognizes revenue upon contract completion.

Cost incurred Estimated Cost to Complete

2017 $ 252,000 $ 1,560,000

2018 1,610,000 510,000

2019 460,000 0

In 2016, JRE2 would report gross profit (loss) of:

net loss during 2019 = $107,000

Explanation:

                Cost incurred    Estimated Cost to Complete

2017           $252,000                  $1,560,000

2018         $1,610,000                     $510,000

2019          $460,000                          $0

The completed contract method for recognizing revenue and expenses is fairly simple, all revenues and expenses are recognized once the contract is completed.

Under this method, all the expenses should be recognized during 2019 = $252,000 + $1,610,000 + $460,000 = $2,322,000, and revenue is also recognized during 2019 = $2,215,000

total revenue            $2,215,000

- total expenses      ($2,322,000)

net loss                      ($107,000)

*The IRS doesn't allow completed contract method for projects that last more than 2 years.

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