Robin Construction Company Began a Long-Term Contract in 2017

question 1

Multiple Choice

Robin Construction Company began a long-term contract in 2017. The contract price was $800,000. The estimated cost of the contract at the time it was begun was $500,000. The actual cost incurred in 2017 was $350,000. The contract was completed in 2018 and the cost incurred that year was $125,000. Under the percentage of completion method:

• A)Robin should report $300,000 of income in 2017.
• B)Robin should report $90,000 of income in 2018.
• C)Robin will receive interest (under the lookback method) on the underpayment of taxes in 2017.
• D)Robin should report $325,000 of income in 2017.
• E)None of the above is correct.

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Definitions:

Goods-In-Bailment

Items that are temporarily entrusted to another party (the bailee) for a specified purpose, under a bailment agreement, but ownership remains with the person who entrusts the goods (the bailor).

Negotiable Document

A document guaranteeing the payment of a specific amount of money, either on demand or at a set time, that can be transferred to another holder.

Nonnegotiable Document

A document that cannot be transferred or assigned to another party in a way that confers the original holder's rights to the recipient.

Origin Contract

An agreement made between parties in the country of exportation, dictating the terms of the exchange of goods or services.