Q16. If Hengel used the percentage-of-completion method, what amount of gross profit (loss) would Hengel report in its 2002 income statement? A) $22,500. B) $20,000. C) $(20,000).
Q17. Football Contractors, Inc. has contracted to build a stadium for the City of Washburn. The contract price is $100 million and costs are estimated at $60 million. Costs are not assured, however, because there is a material risk, which Football Contractors has assumed, that ground water problems might slow construction and increase costs by as much as $40 million. In 2004, the first year of the agreement, Football Contractors, Inc. billed $30 million, received a $20 million payment, and incurred $15 million in costs. For 2004 Football Contractors, Inc. should recognize revenue from the City of Washburn transaction in the amount of: A) $0. B) $30 million. C) $20 million.
Q18. When a reliable estimate of costs exists, ultimate payment is assured, and revenue is earned as costs are incurred, which of the following revenue recognition methods should be used? A) Cost recovery method. B) Installment sales method. C) Percentage-of-completion method.
Q19. When an unreliable estimate of costs exists and ultimate payment is assured, which of the following revenue recognition methods should be used? A) Completed contract method. B) Percentage-of-completion method. C) Cost recovery method.
Q20. The Better Building Company has a contract to build a building for $100 million. The estimate of the cost of the project is $75 million. In the first year of the project, BB had costs of $30 million. The Better Building Company’s reported profit for the first year of the contract, using the percentage-of-completion method, is:
A) $10 million. B) $0. C) $20 million.
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