When There Is a Significant Increase in the Estimated Total

question 1

Multiple Choice

When there is a significant increase in the estimated total contract costs but the increase does not eliminate all profit on the contract, which of the following is correct?

• A) Under both the percentage-of-completion and the completed-contract methods, the estimated cost increase requires a current period adjustment of excess gross profit recognized on the project in prior periods.
• B) Under the percentage-of-completion method only, the estimated cost increase requires a current period adjustment of excess gross profit recognized on the project in prior periods.
• C) Under the completed-contract method only, the estimated cost increase requires a current period adjustment of excess gross profit recognized on the project in prior periods.
• D) No current period adjustment is required.

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Definitions:

Leverage

The use of various financial instruments or borrowed capital, such as debt, to increase the potential return of an investment.

Return On Stockholders' Equity

A measure of a company's profitability that calculates how many dollars of profit are generated for each dollar of shareholders' equity.

Accounts Receivable Turnover

A financial ratio that measures how many times a company can turn its accounts receivable into cash within a specific period.

Sales

The exchange of goods or services for money, constituting the primary source of revenue for most businesses.