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Unformatted text preview: $360,000 gives an estimated profit of $60,000. Current profit from project 1 is then 2/3 times $60,000, or $40,000. Project 2 estimates a $20,000 loss ($300,000-$280,000-$40,000), which is recognized immediately. ARB 45 para 4. Choice A is incorrect. Under percentage-of completion, project 1 is 2/3 complete and the appropriate profit should be recorded. Choice C is incorrect. Estimated losses are recognized in full immediately (conservatism) Choice D is incorrect. Under percentage of completion, only 2/3 of project 1 is complete, so only 2/3 of the $60,000 profit, or $40,000, is recognized. Project 2 expects a loss. Under conservatism, the loss is recognized in full immediately. FOLLOW-UP: How much gross profit (loss) would ABC report in its 2006 income statement if they used the completed contract method? ($20,000), since loss recognized in full immediately! F2/65-CPA-00647...
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- Summer '10