Long-term Construction Contracts

Question 1

Recognizes income only on completion (or substantial completion) of the contract

Answer 1

completed contract method

Question 2

Excess of accumulated costs over related billings should be reflected in the ______ _______ as a ______ _____

Answer 2

balance sheet; current asset

Question 3

The excess of accumulated billings over related costs should be reflected as a ______ _______

Answer 3

current liability

Question 4

Two accounts that mean the same thing:

Answer 4

progress billings & construction in progress

Question 5

Losses should be recognized in full in the year they are _______

Answer 5

discovered

Question 6

Under IFRS, the completed contract method is _________

Answer 6

not permitted

Question 7

% of job earned =

Answer 7

cost incurred / total expected cost

Question 8

A provision for the loss on the _____ ______ should be made when current estimates of the total contract costs indicate a loss

Answer 8

entire contract

Question 9

Advantage of % of completion method

Answer 9

accurate

Question 10

Disadvantage of % of completion method

Answer 10

relying on estimates

Question 11

Step 1 of completed contract method:

Answer 11

contract price - estimated total cost = gross profit

Question 12

Step 2 of completed contract method:

Answer 12

cost incurred / total expect costs = % of completion

Question 13

Step 3 of completed contract method:

Answer 13

step 1 x step 2 (gross profit x % of completion)

Question 14

Step 4 of completed contract method:

Answer 14

profit to date at current - PTD at beginning

Question 15

An estimated loss on the total contract is recognized immediately in the year it is _________

Answer 15

discovered

Question 16

A change in the method of accounting for long-term construction-type contracts is a change in ______ ______

Answer 16

accounting principle