Florida Contractor Practice Exam

According to the completed contract method, when may a contractor realize their profit?

1. When the bid is accepted by the owner

2. When the project is nearly complete

3. When the contract is 50% complete

4. When the owner signs off on the final release

The correct answer is: When the project is nearly complete

The completed contract method allows a contractor to recognize profit only once the entire project is completed and the final approval has been granted. This method is primarily used in construction accounting for projects where the outcome is uncertain until the project is finished. Under this method, all revenues and expenses related to the project are recorded only at the point of completion. This means that profit can only be recognized when the contractor has fulfilled all contractual obligations, and the project can be officially deemed completed. It is particularly advantageous for contractors as it provides clarity on financial results, preventing any premature recognition of income or profit before the project meets all standards and conditions of the contract. Therefore, the correct answer emphasizes that profit realization is linked to the project's completion, rather than at earlier stages of the project, such as when the bid is accepted, during partial completion, or based merely on a percentage of project completion.