Joy€™s Construction is in its fourth year of business. Joy performs long-term construction projects and accounts for them using the completed-contract method. Joy built an apartment building at a price of $1,000,000. The costs and billings for this contract for the first 3 years are as follows.

Joy has contacted you, a certified public accountant, about the following concern. She would like to attract some investors, but she believes that in order to recognize revenue she must first €œdeliver€ the product. Therefore, on her income statement she did not recognize any gross profits from the above contract until 2009, when she recognized the entire $210,000. That looked good for 2009, but the preceding years looked grim by comparison. She wants to know about an alternative to this completed-contract revenue recognition.

Instructions
Draft a letter to Joy, telling her about the percentage-of-completion method of recognizing revenue. Compare it to the completed-contract method. Explain the idea behind the percentage-of-completion method. In addition, illustrate how much revenue she could have recognized in 2007, 2008, and 2009 if she had used thismethod.

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2007 $320,000 480,000 150,000 120,000 2008 2009 Costs incurred to date Estimated costs yet to be incurred Customer billings to date Collection of billings to date $600,000 790,000 200,000 410,000 340,000 1,000,000 950,000