If the Percentage-Of-Completion Method Is Used, What Is the Basis

question 20

Multiple Choice

If the percentage-of-completion method is used, what is the basis for determining the gross profit to be recognized in the second year of a three-year contract?

• A) Cumulative actual costs incurred only
• B) Incremental cost for the second year only
• C) Cumulative actual costs and estimated costs to complete
• D) No gross profit would be recognized in year 2

---

Definitions:

Financing Activities

Activities that result in changes in the size and composition of the equity capital and borrowings of an entity, including issuing shares, repaying loans, or paying dividends.

Operating Activities

Business activities directly related to the production and delivery of goods and services, generating the majority of a company's revenue and cash flows.

Statement Of Cash Flows

A financial report that shows how changes in balance sheet and income affect cash and cash equivalents.

Financing Activities

Transactions and events where a company raises funds to support its operations and expansions, typically involving equity and debt.