The Completed-Contract Method (As Opposed to the Percentage-Of-Completion Method)of Accounting

question 62

Multiple Choice

The completed-contract method (as opposed to the percentage-of-completion method) of accounting for revenue from long-term construction contracts should be used in which of the following circumstances?

• A) The contractor has been in business for many years and has completed many contracts in the past.
• B) Reasonably accurate estimates of the degree of completion cannot be made due to the lack of experience with similar types of contracts.
• C) Reasonable accurate estimates of the degree of completion can be made based on past experience.
• D) The contracts are of a relatively long duration.

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Definitions:

Working Capital Ratio

A financial metric that measures a company's ability to pay off its short-term liabilities with its short-term assets, indicating liquidity.

Current Liabilities

Short-term financial obligations due within one year or within a company's operating cycle, whichever is longer.

Net Income

The total profit of a company after all expenses and taxes have been subtracted from revenues.

Net Income

The total profit of a company after all expenses and taxes have been deducted from revenue.