In 2018, Cashmere Construction Company, a small business, 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 2018, Cashmere incurred $300,000 of costs on the contract, and in 2019 the contract was completed at a total cost of $425,000. Cashmere is not required to recognize any income from the contract until 2019.

Question

Quizplus · Accepted Answer

According to the percentage of completion method, revenue and expenses are recognized based on the progress of the contract. In this case, since the total cost of the contract is $425,000 and the estimated total cost is $400,000, Cashmere has completed the contract and can recognize revenue in 2019. Therefore, the statement is true.

In 2018, Cashmere Construction Company, a Small Business, Enters into a Contract