You have been engaged by Ashely Corp to advise it
You have been engaged by Ashely Corp. to advise it on the proper accounting for a series of long-term contracts. Ashely began doing business on January 1, 2014, and its construction activities for the first year of operations are shown below. All contract costs are with different customers, and any work that remains to be done at December 31, 2014, is expected to be completed in 2015.
Assuming that Ashely Corp. uses the earnings approach:
(a) Using the percentage-of-completion method, prepare a schedule to calculate gross profit or loss to be reported, unbilled contract costs and recognized profit, and billings in excess of costs and recognized profit.
(b) Prepare a partial income statement and balance sheet to show how the information would be reported for financial statement purposes.
(c) Repeat the requirements for part (a) under the completed-contract method.
(d) Using information from your answers to the previous questions, prepare a brief report that compares the conceptual features (both positive and negative) of the two revenue recognition methods.
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