In the case of a small home construction company that builds under long-term con

ID: 2606899 • Letter: I

Question

In the case of a small home construction company that builds under long-term contracts, generally:

a. The percentage of completion method is required to report the income from the construction contracts.

b. The percentage of completion method can be elected and generally will defer income until the contract is completed.

c. The completed contract method can be used and generally will defer income.

d. The accrual method must be used because inventories are an income-producing factor.

e. None of the above is true.

Explanation / Answer

Answer : c. The completed contract method can be used and generally will defer income.

=> A small home construction company that builds under long-term contracts, generally adopts the completed contract method to defer income for the purpose of defering the taxes until the completion of the contract.

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In the case of a small home construction company that builds under long-term con

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