Ch2 long term constructin contracts

Question 1

How is completed contract method recognized?

Answer 1

Under this method, revenue is recognized when the contract is complete, however expected loses are recognized immediately in their entirety.

Question 2

How is the percentage of completion method used?

Answer 2

You take the total contract price, less the estimated costs of completion, giving you a profit(loss). If a profit multiply it by (costs incurred / (total costs))

Question 3

How do you calculate net current asset or current liability related to construction?

Answer 3

If the sum of cumulative costs incurred plus cumulative gross profit recognized exceeds cumulative billing, the excess is reported as current asset. If cumulative billings exceeds the sum of cumulative costs incurred plus cumulative gross profit recognized, the difference is reported as a current liability.