Cost Estimates on a Long-Term Contract May Indicate That a Loss

question 39

Multiple Choice

Cost estimates on a long-term contract may indicate that a loss will result on completion of the entire contract.In this case, the entire expected loss should be

• A)recognized in the current period, regardless of whether the percentage-of-completion or cost-recovery method is employed.
• B)recognized in the current period under the percentage-of-completion method, but the cost-recovery method defers recognition of the loss to the time when the contract is completed.
• C)recognized in the current period under the cost-recovery method, but the percentage-of-completion method defers the loss until the contract is completed.
• D)deferred and recognized when the contract is completed, regardless of whether the percentage-of-completion or cost-recovery method is employed.

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Definitions:

Investment

The act of allocating resources, usually money, with the expectation of generating an income or profit, often through the acquisition of assets.

Government Spending

Expenditures made by the government for its operations, provision of public services, or to stimulate the economy.

Imports

Products and offerings imported from foreign countries for the purpose of being sold.

Government Purchases

Expenditures made by the government for goods and services including infrastructure, public services, and national defense.