In 2012, Cashmere Construction Company enters into a contract to build a beach cottage for Martha and Rob for a total price of $500,000.Cashmere estimates the total cost to complete the cottage to be $400,000.In 2012, Cashmere incurred $300,000 of costs on the contract, and in 2013 the contract was completed at a total cost of $425,000.Cashmere is not required to recognize any income from the contract until 2013.

Question

Quizplus · Accepted Answer

According to the percentage of completion method, income from a contract is recognized based on the proportion of costs incurred to the total estimated costs. As of the end of 2012, Cashmere had only incurred 60% of the total estimated costs ($300,000/$500,000), which means they cannot recognize any income from the contract until 2013 when the project is completed and the total cost is known to be $425,000. Therefore, the statement is true.

In 2012, Cashmere Construction Company Enters into a Contract to Build