Lark Corphas a Contract to Construct a $5,000,000 Cruise Ship at at an Estimated

question 35

Multiple Choice

Lark Corp.has a contract to construct a $5,000,000 cruise ship at an estimated cost of $4,000,000.The company will begin construction of the cruise ship in early January 2011 and expects to complete the project sometime in late 2014.Lark Corp.has never constructed a cruise ship before, and the customer has never operated a cruise ship.Due to this and other circumstances, Lark Corp.believes there are inherent hazards in the contract beyond the normal, recurring business risks.Lark Corp.expects to recover all its costs under the contract.During 2011 and 2012, the company has the following activity:

For the year ended December 31, 2012, how much revenue should Lark Corp.recognize on its income statement?

• A)$980,000
• B)$2,040,000
• C)$1,300,000
• D)$1,060,000

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Definitions:

Negotiator

A person who communicates with others to reach an agreement in their mutual interest.

Procedural Issues

Concerns or problems related to the methods or processes used in carrying out an activity or achieving a goal.

Substantive Ones

Essential or significant matters, issues, or elements that are of the utmost importance.

Bargaining Mixes

The combination of issues, interests, and goals that parties bring to a negotiation table, which are tradeable and negotiable.