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.

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Definitions:

Sarbanes-Oxley Act

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Form 8-K

A report filed by publicly traded companies with the SEC to announce significant events that shareholders should know about.

Middle Manager

A managerial position typically below top management and above frontline managers, responsible for implementing the policies and plans developed by senior management.