Widjaja Company is accounting for a long-term construction contract using the percentage-of- completion method. it is a year contract that is currently in its second year. The latest estimates of total contract costs indicate that the contract will be completed at a profit to Widjaja Company. Answer the following questions in the Discussion Board: a. What theoretical justification is there for Widjaja Company's use of the percentage-of- completion method? The rationale for using percentage-of-completion accounting is that under most of these contracts the buyer and seller have enforceable rights. The buyer has the legal right to require specic performance on the contract. The seller has the right to require progress payments that provide evidence of the buyer's ownership interest. As a result, a continuous sale occurs as the work progresses. Companies should recognize revenue according to that progression (Kieso lfl). b. How would progress billings be accounted for? Include in your discussion the classification of progress billings in Widjaja Company financial statements. The company accumulates construction costs plus gross profit recognized to date in an inventory account {Construction in Process}. and it accumulates progress billings in a contra inventory account (Billings on Construction in Pmcess) [Kieso 1D?2}. c. How would the income recognized in the second year of the 4~year contract be determined using the cost-to-cost method of determining percentage of completion? Under the cost-to-cost basis, the company would measure the percentage of completion by comparing costs incurred to date with the most recent estimate of the total costs required to complete the contract [Kieso IDSE}. d. What would be the effect on earnings per share in the second year of the 4-year contract of using the percentage-of-completion method instead of the completed-contract method? Discuss. While using the completed-contract method the company would be unable to recognize any revenue until the end of the fourth year. Since EPS involves net income the percentage-of- completion method wotdd allow for the income from the second year to be included thus have a higher EPS. Kieso, D.E., Weygandt, J.J.. atWarfield, TI). Intermediate Accounting {15"1 ed.). Hoboken, NJ: John Wiley 3: Sons, Inc