The completed-contract method (as opposed to the percentage-of-completion method)of accounting for revenue from long-term construction contracts should be used in which of the following circumstances?
A) The contractor has been in business for many years and has completed many contracts in the past.
B) Reasonably accurate estimates of the degree of completion cannot be made due to the lack of experience with similar types of contracts.
C) Reasonable accurate estimates of the degree of completion can be made based on past experience.
D) The contracts are of a relatively long duration.

Question

Quizplus · Accepted Answer

The completed-contract method is appropriate when reasonably accurate estimates of the degree of completion cannot be made, as in choice B. This method defers all revenue and expense recognition until the contract is completed, which is suitable when the outcome of a contract cannot be reliably estimated.

The Completed-Contract Method (As Opposed to the Percentage-Of-Completion Method)of Accounting