Briefly Explain How a Company That Recognized Revenue Under the Percentage-Of-Completion

question 76

Essay

Briefly explain how a company that recognized revenue under the percentage-of-completion method (estimating percentage of completion using a cost-to-cost ratio) could manage earnings upward to meet a profit projection. What sort of ethical problems could result from that earnings management?

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Definitions:

Softening

The process of making something softer or less rigid, often through the addition of moisturizers or water.

Muscle Tissue

A body tissue composed of fibers capable of contracting to effect bodily movement.

Excitability

The ability of a cell or organism to respond to external stimuli and generate a response.

Contractility

The ability of muscle tissue to contract forcefully when stimulated.