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

question 31

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:

On its statement of financial position at December 31, 2012, what amount will be reported related to the Construction in Process account?

• A)$40,000 costs in excess of billings.
• B)$1,020,000 costs in excess of billings.
• C)$40,000 billings in excess of costs.
• D)$20,000 billings in excess of costs.

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Definitions:

Reaction

The process by which chemical substances transform into different substances, often involving the breaking and forming of bonds between atoms.

Reaction

A process in which substances interact to form new substances with different physical and chemical properties.

Pentanamide

An organic compound characterized by the presence of a five-carbon chain terminated with an amide group, with the formula CH3(CH2)3CONH2.

1-Pentanamine

An organic compound, a type of primary amine with the chemical formula C5H13N, used in chemical synthesis and as an intermediate.