Question: Tech-Rite Company has several long-term contracts for providing consulting services. Tech-Rite uses the proportional performance method to recognize revenue. Tech-Rite sells 3-year contracts for $3,000

Tech-Rite Company has several long-term contracts for providing consulting services. Tech-Rite uses the proportional performance method to recognize revenue. Tech-Rite sells 3-year contracts for $3,000 in advance to provide services over the 3-year period. Each contract requires Tech-Rite to perform IT services a total of 90 times and requires Tech-Rite to perform HR services a total of 30 times. The contribution to revenue for each IT and each HR performance is equal. At the beginning of 2013, 500 contracts were sold with the following data:

Required:
1. When should Tech-Rite recognize revenue on these contracts? At inception? During performance? When performance is complete? Why or why not?
2. Prepare condensed income statements for 2013, 2014, and 2015 for Tech-Rite.

Performance PerformancePerformance in 2014 Costs in 2013 in 2015 Initial direct costs Direct cost per IT service Direct cost per HR service IT Services provided HR Services provided $ 9,000 $15.00 $20.00 12,000 4,000 15,000 5,000 18,000 6,000

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