Reynolds Custom Builders (RCB) was established in 1987 by Avery Conway and initially built high-quality customized homes
Question:
Reynolds Custom Builders (RCB) was established in 1987 by Avery Conway and initially built high-quality customized homes under contract with specific buyers. In the 2002s, Conway’s two sons joined the company and expanded RCB’s activities into the high-rise apartment and industrial plant markets. Upon the retirement of RCB’s long-time financial manager, Conway’s sons recently hired Ed Borke as controller for RCB. Borke, a former college friend of Conway’s sons, has been associated with a public accounting firm for the last 6 years.
Upon reviewing RCB’s accounting practices, Borke observed that RCB followed the completed-contract method of revenue recognition, a carryover from the years when individual home building was the majority of RCB’s operations. Several years ago, the predominant portion of RCB’s activities shifted to the high-rise and industrial building areas. From land acquisition to the completion of construction, most building contracts cover several years. Under the circumstances, Borke believes that RCB should follow the percentage-of-completion method of accounting. From a typical building contract, Borke developed the following data.
BLUESTEM TRACTOR PLANT | ||||||
Contract price: $8,337,000 | ||||||
2014 | 2015 | 2016 | ||||
Estimated costs | $1,826,010 | $2,705,200 | $2,231,790 | |||
Progress billings | 1,887,000 | 3,063,000 | 3,387,000 | |||
Cash collections | 1,775,000 | 2,805,000 | 3,280,000 |
Electronic Devices and Circuit Theory
ISBN: 978-0135026496
10th edition
Authors: Robert L. Boylestad, Louis Nashelsky