Under the percentage-of-completion method of income recognition on long-term construction contracts:
A) No income amount is closed each period to income summary.
B) The ending inventory is the same as it would be if accounted for under the completed contract method.
C) Income is accumulated in the "Construction-in-Progress" inventory account.
D) The percentage of completion in any year depends on the proportion of billings collected.

Question

Quizplus · Accepted Answer

Under the percentage-of-completion method, income is accumulated in the "Construction-in-Progress" inventory account until the project is completed. At that point, the income and expenses are transferred to the income statement. Option A is incorrect because income amounts are closed each period to income summary. Option B is incorrect because the ending inventory is typically less under the percentage-of-completion method as compared to the completed contract method. Option D is incorrect because the percentage of completion is typically determined based on the degree of work completed, not the proportion of billings collected.

Under the Percentage-Of-Completion Method of Income Recognition on Long-Term Construction