When There Is a Significant Increase in the Estimated Total

question 82

Multiple Choice

When there is a significant increase in the estimated total contract costs but the increase does not eliminate all profit on the contract, which of the following is correct?

• A)Under both the percentage-of-completion and the cost-recovery methods, the estimated cost increase requires a current period adjustment of excess gross profit recognized on the project in prior periods.
• B)Under the percentage-of-completion method only, the estimated cost increase requires a current period adjustment of excess gross profit recognized on the project in prior periods.
• C)Under the cost-recovery method only, the estimated cost increase requires a current period adjustment of excess gross profit recognized on the project in prior periods.
• D)No current period adjustment is required.

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Definitions:

Product

An item or service created through a process and offered in the market to satisfy a need or desire.

Divisional Structure

An organizational layout where operations are grouped based on divisions, which could be product lines, geographical areas, or customer markets.

Functional Structure

An organizational structure where the company is divided into departments based on their functions, such as marketing, operations, and finance.

Geographic Location

The specific physical position of something on the Earth's surface, determined by its latitude, longitude, and other factors.