For Fixed-Price Construction Contracts That Require More Than One Accounting

question 38

Multiple Choice

For fixed-price construction contracts that require more than one accounting period to complete and for which the costs can be reasonably estimated, revenue should be recognized

• A)during production
• B)at the completion of production
• C)when title to the project is transferred to the buyer
• D)when the cash is received from the buyer

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Definitions:

Non-Cancellable

Describes a contract or agreement that cannot be terminated or annulled by either party without facing penalties.

Fixed Price

Refers to the set cost of a good or service that does not change regardless of variations in the market or production costs.

Purchase Obligation

An agreement that legally binds a company to buy a specified amount of goods or services at predetermined prices in the future.

Gross Profit Margin

A financial metric that indicates the percentage of revenue that exceeds the cost of goods sold, showing the financial health and profitability of a company's core activities.