Question

Red Co. has a long-term construction contract that qualifies for revenue to be recognized over time. When Red is determining the amount of income to recognize for year two, which of the following items would Red not use in this calculation?1- Actual cost to date2- Income recognized in year one3- Progress billings to date4- Total expected cost

Answer 1

Red Co.

The items that Red would not use in determining the amount of income to recognize for year two are:

2- Income recognized in year one

3- Progress billings to date

Step-by-step explanation:

The income recognized in year one is purely for year one. It is not necessary to determine the income in year two. The progress billings to date do not impact the income to be recognized in any year. It is not relevant. The relevant items include the actual cost to date and the total expected cost vis-a-vis the expected total or contract revenue.