Question

Under the completed-contract method:

Select one:
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.

Answer 1

Under the completed-contract method, revenue, costs, and gross profit are all recognized when the contract is fully completed, which is option C for the question.

Step-by-step explanation:

The subject of this question is the completed-contract method, which pertains to revenue recognition in accounting. Under this method, the correct answer is C: revenue, cost, and gross profit are recognized at the time the contract is completed. This means that all revenue from the contract is recognized when the work is completed, rather than during the production cycle. Until the contract is finished, no revenue or profits are recorded, even if payments are received. This is in contrast to the percentage-of-completion method, where revenue and expenses are recognized as the contract progresses.

The completed-contract method is an accounting method used to recognize revenue, cost, and gross profit for long-term construction projects. Under this method, revenue, cost, and gross profit are recognized at the time the contract is completed. This means that the revenue and cost associated with the project are not recognized until the entire project is finished. Once the contract is completed, the revenue, cost, and gross profit are recognized based on the financial results of the project.