1. In 20x1, Build Construction Corporation contracted to build a motel. The contract price is $600,000 and the total cost is estimated as $400,000. Over the construction period there has been no change in either the contract price or the estimated total cost. Costs incurred for 20x1 and 20x2 are $200,000 and $160,000, respectively. How much gross profit should be recognized in 20x1 under the percentage-of-completion method?

A) $80,000

B) $100,000

C) $120,000

D) $160,000

2.When using the percentage-of-completion method to account for a long term contract, the gross profit recognized in the first year of a three-year construction project generally is the estimate of total gross profit from the project multiplied by the ratio of:

A) Estimated costs to complete to estimated total costs.

B) Estimated costs to complete to actual costs incurred to date.

C) Estimated total costs to estimated costs to complete.

D) Actual costs incurred to date to estimated total costs.

3.Harry Retails Ltd. extends credit to its customers. Since uncollectible accounts are immaterial, management has decided to use the direct write-off method to account for bad debt expenses. Which of the following would be true?

A) Receivables likely will be overstated.

B) The matching principle is violated if the write-off occurs in the period the receivable is created.

C) The direct write-off method is more costly from an operational stand point.

D) All of the above are true.