Question

The principal disadvantage of using the percentage-of-completion method of recognizing revenue from long-term contracts is that it

a. is unacceptable for income tax purposes.
b. gives results based upon estimates which may be subject to considerable uncertainty.
c. is likely to assign a small amount of revenue to a period during which much revenue was actually earned.
d. None of these answers are correct.

Answer 1

The principal disadvantage of using the percentage-of-completion method of recognizing revenue from long-term contracts is the use of estimates which can be subject to considerable uncertainty.

Step-by-step explanation:

The principal disadvantage of using the percentage-of-completion method of recognizing revenue from long-term contracts is that it gives results based upon estimates which may be subject to considerable uncertainty. This means that the revenue recognized may not accurately reflect the actual revenue earned during a specific period. For example, if a contract takes longer to complete than initially estimated, the revenue recognized in a particular period may be lower than the actual revenue earned. This can impact the accuracy of financial statements and financial decision-making.