Cost Estimates at the End of the Second Year Indicate

question 46

Multiple Choice

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

• A)Under the cost-recovery 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 does not affect the computation of loss for the second year.
• C)Under the cost-recovery method, when the billings exceed the accumulated costs, the amount of the estimated loss is reported as a current liability.
• D)Under the cost-recovery method, when the Construction in Process balance exceeds the billings, the estimated loss is added to the accumulated costs.

Identify and classify types of assets and liabilities in a business context.

Understand the concept and usage of commercial paper and other short-term financing instruments.

Recognize the role of collateral in securing loans and its implications for businesses.

Understand the mechanisms of trade credits and lines of credit as methods of financing.

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Definitions:

Distinct

Clearly different or set apart from something.

Dangerous

Involving potential harm or risk to safety, security, or health.

Retribution

A principle of justice that suggests punishment should be proportionate to the crime committed as a form of moral vengeance.

Criminal Punishment

The legal process by which an individual who has been found guilty of a crime is subjected to a penalty imposed under the law.