Cost estimates at the end of the second year indicate that a loss will result on
ID: 2474798 • Letter: C
Question
Cost estimates at the end of the second year indicate that 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.
Explanation / Answer
d. Under the completed-contract method, when the Construction in Process balance exceeds the billings, the estimated loss is added to the accumulated costs.