Asked by Emily Maniccia on Jul 19, 2024
Verified
At the end of a given long-term construction project,"retained earnings" will be the same regardless of whether the construction company uses the completed contract method or the percentage-of-completion method when accounting for the project.
Retained Earnings
The portion of net income that is not distributed to shareholders but is instead reinvested in the business or kept as a reserve for certain purposes.
Completed Contract Method
A financial accounting approach where revenue and expenses of a contract are recorded only when the contract is fully completed.
Long-Term Construction
Projects or contracts that span over a long period, typically larger in scope and complexity which may impact financial reporting due to their duration.
- Distinguish between revenue recognition methods and their impact on financial statements and retained earnings.
Verified Answer
TA
Torin AschleJul 20, 2024
Final Answer :
True
Explanation :
Retained earnings represent the cumulative profits of a company that have not been distributed as dividends. Accounting methods for a construction project may impact the timing of revenue recognition and expenses, but ultimately the profits or losses from the project will be reflected in retained earnings. Therefore, the method used does not affect retained earnings at the end of the project.
Learning Objectives
- Distinguish between revenue recognition methods and their impact on financial statements and retained earnings.