Question

If a previously profitable construction contract being accounted for with the percentage-of-completion method is later projected...

If a previously profitable construction contract being accounted for with the percentage-of-completion method is later projected to be unprofitable, then the Net Loss in that period will be equal to:

Select one:

a. All previously recognized Gross Profit on the contract

b. The projected Net Loss on the entire contract

c. All previously recognized Gross Profit plus the percentage of completion times the projected Net Loss on the entire contract

d. All previously recognized Gross Profit on the contract plus the projected Net Loss on the entire contract

e. The projected Net Loss on the entire contract times the percentage of completion.

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Answer #1

Answer : Option B

If a previously profitable construction contract being accounted for with the percentage-of-completion method is later projected to be unprofitable, then the Net Loss in that period will be equal to the projected Net Loss on the entire contract. If a net loss is expected under the contract, the entire loss is recognized immediately in the income statement. Revenue and contract costs are recognized in the income statement on the basis of Stage of Completion of the contract.

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