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41) Which statement about the percentage of completion method is correct?

A) This method recognizes revenue on a straight-line basis.

B) This method can only be used if there are no uncertainties about how much the contract will cost or how long it will take to complete.

C) This method allocates revenue, not construction costs.

D) This method allocates construction costs, not revenue.

42) Ying Construction Company entered into a contract to build a new airport terminal for \$2,500,000. Construction commenced on August 1, 2011, with a planned completion date of December 31, 2013. A summary of the costs, billings, and collections is provided below:

 2011 2012 2013 Costs incurred during the year 500,000 700,000 1,100,000 Estimated costs to complete at year end 1,500,000 1,200,000 0 Billings during the year 440,000 1,000,000 1,060,000 Cash collections during the year 400,000 900,000 1,200,000

Ying uses the percentage of completion method. What amount would appear as accounts receivable on Ying's December 31, 2012 balance sheet?

A) \$100,000

B) \$140,000

C) \$1,000,000

D) \$1,400,000

43) Yang Construction Company entered into a contract to build a new airport terminal for \$2,500,000. Construction commenced on August 1, 2011, with a planned completion date of December 31, 2013. A summary of the costs, billings, and collections is provided below:

 2011 2012 2013 Costs incurred during the year 500,000 700,000 1,100,000 Estimated costs to complete at year end 1,500,000 1,200,000 0 Billings during the year 440,000 1,000,000 1,060,000 Cash collections during the year 400,000 900,000 1,200,000

Yang uses the percentage of completion method. How much gross profit would Yang recognize in 2012?

A) \$100,000 loss

B) \$75,000 loss

C) \$50,000 profit

D) \$100,000 profit

44) Early in 2011, Forest Ltd. signed a contract to construct a warehouse. Forest's management estimated the gross profit on the contract to be \$740,000, as indicated by the following:

 Contract price \$3,500,000 Estimated costs 2,760,000 Estimated gross profit \$740,000

At the end of 2011, the status of the work on the contract was as follows:

 Costs incurred to date \$1,350,000 Estimated costs to complete 1,650,000

How much revenue can be recognized on this contract for 2011, assuming that Forest uses the

percentage-of-completion basis for long-term construction contracts (round to nearest dollar)?

A) \$333,000

B) \$863,333

C) \$1,575,000

D) \$1,711,957

45) Pool Contractors (PC) entered into a contract to build a solar heated swimming complex for \$1,800,000. Construction commenced on July 1, 2011, with a planned completion date of December 31, 2013. A summary of the related accounting information is provided below:

 2011 2012 2013 Costs incurred during the year 400,000 500,000 650,000 Estimated costs to complete at year end 1,200,000 600,000 0 Billings during the year 560,000 640,000 600,000 Cash collections during the year 500,000 310,000 990,000

How much gross profit would be recognized in fiscal 2012 if PC uses the percentage-of-completion method?

A) \$50,000

B) \$100,000

C) \$130,000

D) \$180,000

46) Nichols Construction Company (NCC) entered into a contract to build a shopping complex for \$1,900,000. Construction commenced on July 1, 2011, with a planned completion date of December 31, 2013. A summary of the related accounting information is provided below:

 2011 2012 2013 Costs incurred during the year 400,000 500,000 650,000 Estimated costs to complete at year end 1,200,000 600,000 0 Billings during the year 560,000 640,000 600,000 Cash collections during the year 500,000 310,000 990,000

How much would the balance in accounts receivable be on the balance sheet of NCC at the end of 2012 if NCC uses the percentage-of-completion method?

A) \$130,000

B) \$290,000

C) \$790,000

D) \$1,100,000

47) Nova Construction Company (NCC) entered into a contract to build a school for \$1,800,000. Construction commenced on May 1, 2011, with a planned completion date of December 31, 2013. A summary of the related accounting information is provided below:

 2011 2012 2013 Costs incurred during the year 400,000 500,000 650,000 Estimated costs to complete at year end 1,200,000 600,000 0 Billings during the year 560,000 640,000 600,000 Cash collections during the year 500,000 310,000 990,000

How much gross profit would be recognized in fiscal 2011 if NCC uses the percentage-of-completion method?

A) \$50,000

B) \$100,000

C) \$130,000

D) \$180,000

48) Tyco Ltd entered into a contract to build a sports arena for \$1,800,000. Construction commenced on August 1, 2011, with a planned completion date of December 31, 2013. A summary of the related accounting information is provided below:

 2011 2012 2013 Costs incurred during the year 400,000 500,000 650,000 Estimated costs to complete at year end 1,200,000 600,000 0 Billings during the year 560,000 640,000 700,000 Cash collections during the year 500,000 310,000 990,000

How much would the balance in accounts receivable be on the balance sheet of Tyco at the end of 2011 if Tyco uses the percentage-of-completion method?

A) \$110,000

B) \$160,000

C) \$500,000

D) \$660,000

49) Nichols Construction Company (NCC) entered into a contract to build a shopping complex for \$1,900,000. Construction commenced on July 1, 2011, with a planned completion date of December 31, 2013. A summary of the related accounting information is provided below:

 2011 2012 2013 Costs incurred during the year 400,000 500,000 650,000 Estimated costs to complete at year end 1,200,000 600,000 0 Billings during the year 660,000 440,000 800,000 Cash collections during the year 500,000 310,000 800,000

How much would the balance in accounts receivable be on the balance sheet of NCC at the end of 2013 if NCC uses the percentage-of-completion method?

A) \$0

B) \$250,000

C) \$290,000

D) \$800,000

50) Which statement best explains the completed contract method?

A) An accounting method that recognizes revenue and expenses on a contract in proportion to the degree of progress.

B) An accounting method that recognizes revenue and expenses on a contract in proportion to the degree of progress.

C) An accounting method that recognizes an amount of revenue equal to the costs that are expected to be recovered on the contract.

D) An accounting method that recognizes revenue and expenses based on the fair value of the contract.

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