Cost Estimates at the End of the Second Year Indicate

question 72

Multiple Choice

Cost estimates at the end of the second year indicate a loss will result on completion of the entire contract. Which of the following statements is correct?

• A) Under the completed-contract method, the loss is not recognized until the year the construction is completed.
• B) Under the percentage-of-completion method, the gross profit recognized in the first year must not be changed.
• C) Under the completed-contract method, when the billings exceed the accumulated costs, the amount of the estimated loss is reported as a current liability.
• D) Under the completed-contract method, when the Construction in Process balance exceeds the billings, the estimated loss is added to the accumulated costs.

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Definitions:

Rights Offering

A process where a company offers its existing shareholders the opportunity to buy additional shares at a discounted price before offering them to the public.

Market Price

Market price is the current price at which an asset or service can be bought or sold in a given market.

Underwriter

A financial specialist or institution that evaluates and assumes the risk of another party's financial products, often seen in insurance and securities.

Offering Price

The price at which shares of a company are made available for sale to the public during an initial public offering (IPO) or secondary offering.