CFA Practice Question

There are 534 practice questions for this study session.

CFA Practice Question

Which of the following is true regarding the percentage-of-completion method, as opposed to the completed-contract method?

I. Construction costs incurred are greater for the percentage-of-completion method.
II. The percentage-of-completion method will recognize more income in the later stages of the construction project.
III. The construction-in-progress account is smaller during construction under the percentage-of-completion method.
IV. Income is recognized during the construction period under the percentage-of-completion method.
Correct Answer: IV only

Construction costs incurred are the same for both methods. The completed-contract method will recognize all of the income in the last year of the project and it will be larger than income under the percentage-of-completion method. Under the percentage-of completion method, profit each period is recognized and debited to the construction-in-progress account, making it larger than it would be using the completed-contract method.

User Contributed Comments 2

User Comment
brimann CIP account with POC method recognizes income each year, causing CIP account to be LARGER than Complete Contract Method. Answer III does not appear correct.
treakj CIP is the same for both methods. Cost incurred should not change regardless of the method adopted.
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