When there is a significant increase in the estimated total contract costs but the increase does not eliminate all profit on the contract, which of the following is correct?
A)Under both the percentage-of-completion and the cost-recovery methods, the estimated cost increase requires a current period adjustment of excess gross profit recognized on the project in prior periods.
B)Under the percentage-of-completion method only, the estimated cost increase requires a current period adjustment of excess gross profit recognized on the project in prior periods.
C)Under the cost-recovery method only, the estimated cost increase requires a current period adjustment of excess gross profit recognized on the project in prior periods.
D)No current period adjustment is required.

Question

Quizplus · Accepted Answer

Under the percentage-of-completion method, adjustments are made to reflect changes in estimated costs, affecting previously recognized profits. The cost-recovery method does not recognize profit until costs are recovered, so prior period adjustments are not applicable.

When There Is a Significant Increase in the Estimated Total