Under the percentage-of-completion method,the profit to be recognized in any year is based on the ratio of
A)incurred contract costs divided by estimated total contract costs.
B)incurred contract costs multiplied by estimated total contract costs.
C)estimated total contract costs divided by incurred contract costs.
D)estimated total contract costs multiplied by incurred contract costs.

Question

Quizplus · Accepted Answer

The percentage-of-completion method recognizes revenue and expenses in proportion to the degree of completion of a project. Therefore, the profit to be recognized in any year is based on the ratio of incurred contract costs (costs that have been incurred to date) divided by estimated total contract costs (total estimated costs to complete the project). This ratio represents the percentage of the project that has been completed and is used to calculate the revenue and expenses that can be recognized for the year.

Under the Percentage-Of-Completion Method,the Profit to Be Recognized in Any