ABC Inc. uses the percentage of completion method to account for one of its long-term construction projects. Last year the company recorded revenue of $1 million during the first year of one of its projects, which at the time was expected to be profitable. Nearly one year later, the company has incurred substantial cost-overruns. The company now expects the contract to lose $500,000. This is an onerous contract. ABC should therefore record a loss of $500,000 on this contract for the current year.

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The Answer of ABC Inc. uses the percentage of completion method to account for one of its long-term construction projects. Last year the company recorded revenue of $1 million during the first year of one of its projects, which at the time was expected to be profitable. Nearly one year later, the company has incurred substantial cost-overruns. The company now expects the contract to lose $500,000. This is an onerous contract. ABC should therefore record a loss of $500,000 on this contract for the current year.

ABC Inc Uses the Percentage of Completion Method to Account for for One