At December 31, 2010, Roko Co. has two fixed price construction contracts in progress. Both contracts have monthly billings supported by certified surveys of work completed. The contracts are:
a. The Ski Park contract, begun in 2009, is 80% complete, is progressing according to bid estimates, and is expected to be profitable.
b. The Nassu Village contract, a project to construct 100 condominium units, was begun in 2010. Thirty-five units have been completed. Work on the remaining units is delayed by conflicting recommendations on how to overcome unexpected subsoil problems. While the total cost of the project is uncertain, a loss is not anticipated.
1. Identify the alternatives available to account for long-term construction contracts, and specify the criteria used to determine which method is applicable to a given contract.
2. Identify the appropriate accounting method for each of Roko’s two contracts, and describe each contract’s effect on net income for 2010.
3. Indicate how the accounts related to the Ski Park contract should be reported on the balance sheet at December 31, 2010.