Cost Estimates at the End of the Second Year Indicate

question 427

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:

Taxpayer

An individual or entity that is obligated to pay taxes to a federal, state, or local government based on income earned, property owned, or consumption.

Casualty Loss Deduction

A tax deduction that allows taxpayers to deduct losses caused by sudden, unexpected or unusual events such as natural disasters, fires, or thefts.

Fair Market Value

The price at which an asset would sell under normal market conditions between a willing buyer and seller, both having reasonable knowledge of the facts.

Adjusted Gross Income

An individual's total gross income minus specific deductions, used to determine taxable income.