Question

Under the completed-contract method

A) revenue, cost, and gross profit are recognized during the production cycle.
B) revenue and cost are recognized during the production cycle, but gross profit recognition is deferred until the contract is completed.
C) revenue, cost, and gross profit are recognized at the time the contract is completed.
D) None of these answers are correct.

Answer 1

The completed-contract method recognizes revenue and cost during the production cycle, but defers recognition of gross profit until the contract is completed.

Step-by-step explanation:

The answer to the question is B) revenue and cost are recognized during the production cycle, but gross profit recognition is deferred until the contract is completed.

Under the completed-contract method, revenue and cost are recognized as the work progresses, but the recognition of gross profit is deferred until the contract is completed. This means that the revenue and cost associated with the contract are recorded gradually over time, while the gross profit is only recognized at the end of the contract.

For example, if a construction company uses the completed-contract method, it would recognize revenue and cost as it completes various milestones or stages of the construction project. However, the gross profit from the project would only be recognized once the entire project is finished.