Question: Lark Corp. has a contract to construct a $5,000,000 cruise ship at an estimated cost of $4,000,000. The company will begin construction of the cruise ship in early January 2013 and expects to complete the project sometime in late 2014. Lark Corp. has never constructed a cruise ship before, and the customer has never operated a cruise ship. Due to this and other circumstances, Lark Corp. believes there are inherent hazards in the contract beyond the normal, recurring business risks. Lark Corp. expects to recover all its costs under the contract. Under these circumstances, Lark Corp. should:
(a) wait until the completion of construction before it recognizes revenue.
(b) use the percentage-of-completion method and measure progress toward completion using the units-of-delivery method.
(c) use the percentage-of-completion method and measure progress toward completion using the cost-to-cost method.
(d) use the cost-recovery (zero-profit) method.