CFA Practice Question

There are 534 practice questions for this study session.

CFA Practice Question

Which of the following statements would be an indication that the firm may use the percentage-of-completion method?

I. A reliable estimate of the costs of the project cannot be estimated; however, the contractor does have cost data from other projects.
II. There exists some uncertainty about the current credit-worthiness of the purchaser of the contract, but he has paid billings in the past.
III. There is no formal contract; however, there exists a verbal contract between the two parties.
IV. A reliable estimate of the portion of the contract that has been completed can be made.
A. I and IV
B. II and III
C. IV only
Explanation: The first three statements are actually indications that the completed-contract method should be used. The contractor has to be able to make reliable estimates on this project, not others. Any indication of uncertainty about collection would rule out the percentage-of-completion method. A formal contract should be in place before the percentage-of-completion method is used.

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