Robin Construction Company Began a Long-Term Contract in 2019

question 61

Multiple Choice

Robin Construction Company began a long-term contract in 2019.The contract price was $800,000.The estimated cost of the contract at the time it was begun was $500,000.The actual cost incurred in 2019 was $350,000.The contract was completed in 2020 and the cost incurred that year was $125,000.Under the percentage of completion method:

• A)Robin should report $300,000 of income in 2019.
• B)Robin should report $90,000 of income in 2020.
• C)Robin will receive interest (under the look-back method) on the underpayment of taxes in 2019.
• D)Robin should report $325,000 of income in 2019.
• E)None of these is correct.

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Definitions:

Effective Interest Rate

The actual interest rate earned or paid on an investment, loan, or financial product, considering compounding over a given time frame.

Extraordinary Receivable Restructuring

The modification of the terms of receivables due to unusual or nonrecurring events, aiming to improve collection or mitigate financial impact.

Allowance for Uncollectible Accounts

An estimate of the amount of receivables that are expected not to be collected, used to adjust the value of gross receivables to a net realizable value.

Aging

A process or method used to categorize accounts receivable based on their time outstanding.