(Comprehensive Problem—Long Term Contracts) You have been engaged by Buhl Construction Company to advise it concerning the proper accounting for a series of long term contracts. Buhl commenced doing business on January 1, 2012. Construction activities for the first year of operations are shown below. All contract costs are with different customers, and any work remaining at December 31, 2012, is expected to be completed in 2013.
|
Project |
Total |
Billings |
Cash |
Contract |
Estimated |
|
A |
$ 300,000 |
$200,000 |
$180,000 |
$248,000 |
$ 72,000 |
|
B |
350,000 |
110,000 |
105,000 |
67,800 |
271,200 |
|
C |
280,000 |
280,000 |
255,000 |
186,000 |
–0– |
|
D |
200,000 |
35,000 |
25,000 |
118,000 |
87,000 |
|
E |
240,000 |
205,000 |
200,000 |
190,000 |
10,000 |
|
$1,370,000 |
$830,000 |
$765,000 |
$809,800 |
$440,200 |
Instructions
(a) Prepare a schedule to compute gross profit (loss) to be reported, unbilled contract costs and recognized profit, and billings in excess of costs and recognized profit using the percentage of completion method.
(b) Prepare a partial income statement and balance sheet to indicate how the information would be reported for financial statement purposes.
(c) Repeat the requirements for part (a), assuming Buhl uses the completed contract method.
(d) Using the responses above for illustrative purposes, prepare a brief report comparing the conceptual merits (both positive and negative) of the two revenue recognition approaches.