i thought i knew this but not. --------- 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) costs incurred in year 3 to total billings. B) costs incurred in year 3 to total estimated costs. C) total costs incurred to date to total billings to date. D) total costs incurred to total estimated cost.
B??
Yep - It’s B
I picked B too. But schweser says, The correct answer was D) total costs incurred to total estimated cost. The percentage of completion method recognizes revenues in proportion to the proportion of expenses incurred. Any thoughts?
http://www.epcc.edu/Portals/256/pdf/Acnt2303/PercentageofCompletion.pdf Look at page three… Makes sense - Otherwise, if your total costs rise, you throw off the percentages and the “percent” of GP recognized wont sum to 100. D’s right - In multi-year POC, you find out how much profit should be recognized TOTAL, and subtract out what was recognized in previous years.
Thanks hoff.