(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, 2014. 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, 2014, is expected to completed in 2015.

Instructions:

a) Prepare a schedule to compute gross profit (loss) to be reported, unbilled contract cost and recognized profit, and billing in excess of cost 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 statements 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.

Contract Costs Cash Estimated BillingsCollections IncurredAdditional Total Contract ThroughThrough Through Costs to Project 12/31/1412/31/1412/31/14Complete A S300,000 S 200,000 S 180,000 S 248,000 S72,000 B S 350,000 S 110,000 S 105,000 S 67,800 S 271,200 rice CS 280,000 S 280,000 S 255,000 S 186,000 S D S 200,000 S 35,000 S 25,000 S 118,000 S 87,000 ES 240,000 S 205.000 S 200,000 S 190,000 S 10.000