The Marathon Company uses the percentage-of-completion method to recognize profits on long-term contracts. At the end of the second year of the contract, a project was 70% complete and an overall loss of $100,000 was expected. A $25,000 profit had been recognized in the first year of the contract. The loss to be recognized in the second year is
A) $ 75,000
B) $ 85,000
C) $105,000
D) $125,000

Question

Quizplus · Accepted Answer

The total expected loss is $100,000. Since a $25,000 profit was recognized in the first year, the loss to be recognized in the second year is $100,000 + $25,000 = $125,000.

The Marathon Company Uses the Percentage-Of-Completion Method to Recognize Profits