When the Outcome of a Construction Contract Cannot Be Estimated

question 91

Multiple Choice

When the outcome of a construction contract cannot be estimated reliably, but it is probable that the costs can be collected, the amount of revenue recognized each period is calculated based on

• A) the percentage of completion method.
• B) the completed contract method.
• C) the zero profit method.
• D) no revenue should be recognized until cash is collected.

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Definitions:

Income From Operations

Earnings derived from a company's primary business activities before taxes and extraordinary items.

Periodic Inventory System

An accounting method where inventory is updated in the accounting records periodically, often used by smaller businesses due to its simplicity.

Cost Of Merchandise

The purchase price of goods sold by a company, including the cost of acquiring the goods plus any additional expenses to bring them to saleable condition.

Freight In

The cost associated with transporting goods into a business, typically included in the cost of goods sold calculation.