For a construction contract where the company uses the percentage of completion method and there is a change in the estimated total cost of the contract from 12 million to 13 million, the accountant should do the following:
A)Use the average cost of 12.5 million.
B)Compute the percentage completed using the new cost total if the company uses the cost ratio to estimate percentage completed.
C)Use estimated costs determined at the beginning of the contract, not actual costs to date.
D)Use retrospective treatment.

Question

Quizplus · Accepted Answer

The percentage of completion method requires updating the calculation of the percentage completed based on the most current estimates of the total costs. Therefore, if the estimated total cost of the contract increases from 12 million to 13 million, the company should compute the percentage completed using the new total cost estimate. This ensures that revenue recognition is based on the most accurate and current information available.

For a Construction Contract Where the Company Uses the Percentage