Answered: What are the two basic methods of…

What are the two basic methods of accounting for long term construction contracts? Indicate the circumstances that determine when one or the other of these methods should be used.

Principles of Accounting Volume 1

19th Edition

ISBN:9781947172685

Author:OpenStax

Publisher:OpenStax

Chapter9: Accounting For Receivables

Section: Chapter Questions

Problem 18Q: What are the two methods of revenue recognition for long-term construction projects?

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Concept explainers

Contract Costing

Contract costing is about tracing particular costs related to a particular contract entered into with the customer. It is one of the forms of job order costing. It is useful in long-term contracts at the most. It is seen that substantial time is required for the completion of the contract which takes different accounting periods. Thus, it is very much helpful for recognizing the costs associated with it and accounting in their specific accounting periods.

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What are the two basic methods of accounting for long term construction contracts? Indicate the circumstances that determine when one or the other of these methods should be used.

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What two methods are identified in the Codification as appropriate in accounting for long-term construction contracts? Where in the Codification did you find this information?
When the outcome of a construction contract cannot be estimated reliably, how shall contract revenue and contract costs associated with the construction contract be recognized? Group of answer choices They shall be recognized as revenue and expenses respectively by reference to the state of completion of the contract activity at the end of the reporting period also known as by percentage of completion method. They shall be recognized as revenue and expenses respectively by the date of earning of revenue or incurring of expenses also known as accrual method. They shall be recognized as revenue and expenses respectively by reference to the percentage of collection of receivables from customers also known as by installment method. Revenue shall be recognized only to the extent of contract cost incurred that is probable will be recoverable and the contract cost shall be recognized as an expense in the period in which there are incurred also known as cost recovery or zero-profit…
how long-term construction contract are accounted for and some of the issues that are faced for financial reporting purposes.
What are the two basic methods of accounting for longtermconstruction contracts? Indicate the circumstancesthat determine when one or the other of these methodsshould be used.
In accounting for a long-term construction contract using the percentage of completion method, the progress billings on contract account is a * A. noncurrent liability B. revenue account C. contra noncurrent liability D.contra current asset account
The primary issue in the accounting for construction contracts is the determination of the percentage of completion and revenue to be recognized during the period. the allocation of contract revenue and contract costs to the accounting periods in which construction work is performed. the determination of the rate at which physical performance has been made during the reporting period and the future performance on which future revenues will be allocated. the allocation of costs of a long-lived asset to permit the proper matching of costs with revenues.
Explain an example of long-term construction contracts qualify for revenue recognition over time.
Which of the following shall be excluded in the contract costs of a construction contract? * A. Costs that are directly attributable to contract activity in general and can be allocated to the contract B. Costs that directly relate to the specific contract C. Such other costs as are specifically chargeable to the customer under the terms of the contract D. Selling costs such as advertisement expense or commissions of real estate agents or brokers Percentage of Completion is favored to be used under the following circumstances, except A. Progress Billings is assured of collection B. Contract Price is assured C. Performance obligation can be reliably measured D. Contract Costs can be reliably estimated S1: Cost plus contract is a contract used on long term construction contracts in which the contractor agrees to a contract price that is fixed, either at the inception or at a fixed rate per unit of output, which in some cases may be subject to cost escalation clauses.S2: Variable…
At contract inception, PFRS 15 requires an entity to determine how the performance obligations identified in the contract will be satisfied. According to PFRS 15, how does an entity satisfy a performance obligation in a long-term construction contract? over time at point in time any time over time or at point in time
Which of the following costs shall from part of contract costs of long-term construction contract? a. General administration costs for which reimbursement is not specified in the contract b. Research and development costs for which reimbursement is not specified in the contract c. Construction overheads including costs such as the preparation and processing of construction personnel payroll. d. Selling costs such as broker’s commission
Which statement is true when the outcome of construction contract cannot be estimated reliably? a. Contract costs shall be recognized as an expense in the period when incurred. b. Revenue shall be recognized only to the extent of contract costs incurred that is probable will be recoverable c. All of these statements are true. d. An expected loss on the construction contract shall be recognized as an expense immediately.
What are the two methods of revenue recognition for long-term construction projects?