If the percentage-of-completion method is used,what is the basis for determining the gross profit to be recognized in the second year of a three-year contract?
A) Cumulative actual costs and estimated costs to complete
B) Incremental cost for the second year only
C) Cumulative actual costs incurred only
D) No gross profit would be recognized in year 2

Question

Quizplus · Accepted Answer

The percentage-of-completion method recognizes revenue and gross profit based on the progress of the project. In the second year of a three-year contract, the gross profit to be recognized would be based on the cumulative actual costs incurred plus the estimated costs to complete the project. This would give a more accurate picture of the project's progress and allow for the recognition of revenue and gross profit based on how much work has been completed so far.

If the Percentage-Of-Completion Method Is Used,what Is the Basis for Determining