Florida General Contractor Practice Exam

What is the recognized value of a completed contract method of accounting on a total contract of 500,000 with a percentage of completion at 86%?

1. 430,000

2. 500,000

3. 86,000

4. 100,000

The correct answer is: 430,000

The value of a completed contract method of accounting focuses on recognizing revenue only when a contract is fully completed. In this context, 86% completion of a contract valued at $500,000 would lead to recognizing revenue based on that percentage. However, in this question, the key aspect is that under the completed contract method, revenue doesn't get recognized until the project is entirely finished. This means that regardless of how much of the contract is completed, the recognized value at any partial completion under this method remains at zero until the last stage is reached. Considering this, if the accounting method were based on the percentage of completion (which is different from completed contract accounting), the recognized value might be 430,000 (which is calculated as $500,000 multiplied by 86%). But since this question focuses on the completed contract method, under that method, what truly is *recognized* or reported for this contract would be zero until completion. Therefore, the presented answer of 430,000 does not apply to the recognized value under the completed contract method, as that value applies in a different accounting method. When using the percentage of completion method, recognizing revenue correlates directly with the completion progress, leading to a recognized value of $430,000