A long-term contract is a contract that is NOT completed in the same year that it was entered into and it contracts for the manufacture, construction, installation or building of property. Examples include construction of a bridge or a highway.
The two most common Long-term Contract accounting methods are:
- Percentage-of-Completion Method
- Completed Contract Method
Taxpayer has to recognize a portion of the gross profit on the contract, based on an estimate of the contract completed.Contract Price Reportable = Total Contract Price x [Period Cost/Total Est. Cost]
Most long-term contracts use the Percentage-of-Completion method.
Completed Contract Method:
This method allows the taxpayer to defer the revenue recognized until completion of the contract.
Only allowed in two situations:
- Small contractors - two year completion, average annual gross receipts less than $10 million (for the last three years)
- Home construction - buildings containing four or less living units, with at least 80% of costs going towards project.
TradingBoth forward and futures contracts allow investors to buy or sell an asset at a specific time and price.
Financial AdvisorDivorce can be the most financially devastating event in a person’s life. Here’s what your clients need to know about handling annuities in a divorce case.
InvestingA forward contract is a customized contract between two parties to buy or sell an asset at a specified price on a future date.
InvestingOptions on futures contracts offer another way for day traders to use options. These are traded on the same exchange as the underlying futures contract. Traders should take care to understand ...
Financial AdvisorFutures contracts are one of the most important financial innovations in history, but they are often misunderstood. Find out this contract is used to transfer risk between different parties. ...
TradingThis article expands on the complex structure of derivatives by explaining how an investor can assess interest rate parity and implement covered interest arbitrage by using a currency forward ...
MarketsFutures is short for Futures Contracts, which are contracts between a buyer and seller of an asset who agree to exchange goods and money at a future date, but at a price and quantity determined ...
InvestingLearn what you need to know about margin to pass your Series 3 exam.
MarketsLearn about the risks and rewards of trading oil futures contracts. Read about a few strategies to limit the risk in trading oil futures contracts.
ETFs & Mutual FundsDiscover the main similarities and differences between two major energy sector ETFs: The United States Natural Gas Fund and The United States Gasoline Fund.