CCA Construction Cost Principles & Accounting 2

Question 1

Under the percentage-of-completion method, how is revenue recognized on a long-term construction contract?

Accepted Answer

In proportion to the costs incurred relative to total estimated costs

Answer

The percentage-of-completion method recognizes revenue based on the ratio of costs incurred to date versus total estimated contract costs.

Question 2

A construction company overbills a client $200,000 relative to actual work completed. This amount is recorded as:

Accepted Answer

Overbillings (billings in excess of costs)

Answer

Billings that exceed the revenue earned to date are classified as overbillings, a current liability representing the obligation to perform future work.

Question 3

Which cost classification best describes the wages of a site superintendent who oversees multiple projects simultaneously?

Accepted Answer

Indirect labor

Answer

Costs that cannot be traced directly to a single project, such as a multi-project superintendent, are classified as indirect labor.

Question 4

A contractor's estimate-at-completion (EAC) exceeds the original contract price. Under GAAP, the contractor must:

Accepted Answer

Recognize the full anticipated loss immediately in the current period

Answer

GAAP requires immediate recognition of the entire anticipated loss on a loss contract in the period it becomes evident.

Question 5

Which of the following is an example of a period cost in construction accounting?

Accepted Answer

Corporate office rent unrelated to any project

Answer

Period costs, such as corporate office rent, are expensed in the period incurred rather than allocated to specific contracts.

(CCA) Certified Construction Auditor Practice Test

(CCA) Certified Construction Auditor Practice Test

CCA Construction Cost Principles & Accounting 2