CCIFP - Certified Construction Industry Financial Professional Revenue Recognition Methods Questions and Answers

Question 1

Under ASC 606, which of the following is NOT a required criterion for recognizing revenue over time for a construction contract?

Accepted Answer

The contractor can reliably estimate both the costs to complete and the progress toward completion.

Answer

The customer simultaneously receives and consumes the benefits provided by the contractor's performance.

Answer

The contractor's performance creates or enhances an asset that the customer controls as the asset is created.

Answer

The performance does not create an asset with an alternative use to the contractor, and the contractor has an enforceable right to payment for performance completed to date.

Question 2

A contractor uses the cost-to-cost method to measure progress on a fixed-price contract. The total contract price is $5,000,000 and the total estimated cost is $4,000,000. In Year 1, the contractor incurs $1,000,000 of costs. However, this includes $200,000 for specialized, uninstalled materials delivered to the site, for which control has not yet transferred to the customer. What is the amount of revenue the contractor should recognize in Year 1?

Accepted Answer

$1,000,000

Answer

$1,250,000

Answer

$1,200,000

Answer

$1,500,000

Question 3

A construction contract includes a $100,000 bonus if the project is completed by June 1st and a $40,000 bonus if completed by July 1st. The contractor assesses the probabilities of completion as follows: 60% chance by June 1st, 30% chance by July 1st, and 10% chance after July 1st. Using the 'expected value' method, how much variable consideration for the bonus should be included in the transaction price?

Accepted Answer

$72,000

Answer

$100,000

Answer

$60,000

Answer

$40,000

Question 4

Which of the following revenue recognition methods defers all revenue and costs until the project is substantially complete?

Accepted Answer

Completed Contract Method

Answer

Cost-to-Cost Method

Answer

Efforts-Expended Method

Answer

Right-to-Invoice Practical Expedient

Question 5

According to the five-step model for revenue recognition under ASC 606, what is the immediate next step after determining the transaction price?

Accepted Answer

Allocate the transaction price to the performance obligations.

Answer

Recognize revenue when (or as) performance obligations are satisfied.

Answer

Identify the performance obligations in the contract.

Answer

Identify the contract with the customer.

Question 6

A contractor signs a contract to build a specialized manufacturing facility on land owned by the customer. The contract specifies that the facility cannot be repurposed for another customer without significant modification, and the contractor has an enforceable right to payment for work completed to date plus a reasonable profit. This contract most likely requires revenue to be recognized:

Accepted Answer

Over time, because the customer controls the asset (the land and building) as it is created.

Answer

At the point in time when the keys are handed over to the customer.

Answer

At the point in time when the final certificate of occupancy is issued.

Answer

On a straight-line basis over the construction period.