ABC Inc. uses the percentage of completion method to account for one of its long-term construction projects. ABC reported a loss on this contract for its most recent fiscal year, but the contract is expected to be profitable. This is an onerous contract.

Question

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An onerous contract is one in which the costs to fulfill the contract exceed the economic benefits expected to be received from it. Since the contract is expected to be profitable overall, it is not considered onerous despite the reported loss in the most recent fiscal year.

ABC Inc Uses the Percentage of Completion Method to Account for for One