A company is accounting for a long-term construction contract where revenue is recognized over time. The project is built to the customer's specifications, and the customer can make changes as construction is ongoing. It is a 3-year, fixed-fee contract that is presently in its first year. The latest reasonable estimates of total contract costs indicate that the contract will be completed at a profit. The company will submit progress billings to the customer and has reasonable assurance that collections on these billings will be received in each year of the contract. The contract can be canceled at any time by the customer who will retain control of any work done to date. Discuss the following: a. When should revenue from contracts be accounted for overtime versus at a point in time? b. How would the income recognized in each year of this long-term construction contract be determined using the cost-to-cost basis of determining progress toward satisfaction of the performance obligation? c. What is the effect on income, if any, of the progress billings and the collections on these b
A company is accounting for a long-term construction contract where revenue is recognized over time. The project is built to the customer's specifications, and the customer can make changes as construction is ongoing. It is a 3-year, fixed-fee contract that is presently in its first year. The latest reasonable estimates of total contract costs indicate that the contract will be completed at a profit. The company will submit progress billings to the customer and has reasonable assurance that collections on these billings will be received in each year of the contract. The contract can be canceled at any time by the customer who will retain control of any work done to date.
Discuss the following:
a. When should revenue from contracts be accounted for overtime versus at a point in time?
b. How would the income recognized in each year of this long-term construction contract be determined using the cost-to-cost basis of determining progress toward satisfaction of the performance obligation?
c. What is the effect on income, if any, of the progress billings and the collections on these billings?
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