The calculation of the income recognized in the third year of a five-year construction contract accounted for using the percentage-of-completion method includes the ratio of: A) total costs incurred to total estimated cost. B) costs incurred in year 3 to total billings. C) costs incurred in year 3 to total estimated costs. D) total costs incurred to date to total billings to date.
Your answer: C was incorrect. The correct answer was A) total costs incurred to total estimated cost. The percentage of completion method recognizes revenues in proportion to the proportion of expenses incurred. ================ shouldn’t 3rd years Income consider only the 3rd year’s expenses/Total expenses.
I think the ans is wrong. i would go with C as well
no guys, review your revenue recognition, its the accumulated cost/total estimated, then you subtract what was incurred previously from it… the reason for this is when you have a change, you’ll see when you have a change in cost estimates, and you don’t use accumulated, then your calculation will be off…at least from what I recall from the CFAI text
^ makes sense…