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, 2010. 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, 2010, is expected to be completed in 2011.

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.

Cash Contract Estimated Additional Billings Through 12/31/10 Total Contract Price Costs Incurred Collections Costs to Through Through 12/31/10 12/31/10 $248,000 67,800 186,000 118,000 190,000 $809,800 Project Complete $ 300,000 $ 72,000 $200,000 $180,000 271,200 -0- 87,000 10,000 255,000 25,000 200,000 280,000 280,000 200,000 240,000 205,000 $440,200 $830,000 $765,000 $1,370,000