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 completed-contract 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 completed-contract 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, an increase in estimated costs requires a current period adjustment to correct previously recognized gross profit based on the new estimates. The completed-contract method does not recognize profit until the project is complete, so no adjustment for prior periods is needed.

When There Is a Significant Increase in the Estimated Total