Cost estimates on a long-term contract may indicate that a loss will result on completion of the entire contract. In this case, the entire expected loss should be
A) recognized in the current period, regardless of whether the percentage-of-completion or completed-contract method is used.
B) recognized in the current period under the percentage-of-completion method, but the completed-contract method should defer recognition of the loss to the time when the contract is completed.
C) recognized in the current period under the completed-contract method, but the percentage-of-completion method should defer the loss until the contract is completed.
D) deferred and recognized when the contract is completed, regardless of whether the percentage-of-completion or completed-contract method is used.

Question

Quizplus · Accepted Answer

Under both the percentage-of-completion and completed-contract methods, if an overall loss is anticipated on a contract, the entire expected loss should be recognized immediately in the current period. This approach ensures that financial statements reflect the most accurate and current information about the company's financial health and performance.

Cost Estimates on a Long-Term Contract May Indicate That a Loss