Chapter 18
Windsor Construction Inc. agrees to construct a boat dock at the Smooth Sailing Marina for $32,400. In addition, under the terms of the contract, Smooth Sailing will pay Windsor a performance bonus of up to $12,000 based on the timing of completion. The performance bonus will be paid fully if construction is completed by the agreed-upon date. The performance bonus decreases by $2,400 per week for every week beyond the agreed-upon completion date. Windsor has constructed a number of boat docks under similar agreements. Windsor's management estimates, that it has a 60% probability of completing the project on time, a 20% probability of completing the project one week late, and a 20% probability of completing the project two weeks late. Management does not believe the project will be more than two weeks late. Determine the transaction price that Windsor should compute for this agreement.
$42,960
Monty Construction Company began work on a $903,000 construction contract in 2017. During 2017, Monty incurred costs of $396,000, billed its customer for $317,000, and collected $237,000. At December 31, 2017, the estimated future costs to complete the project total $555,000. Prepare Archer's journal entry to record profit or loss, if any, using (a) the percentage-of-completion method and (b) the completed-contract method.
% of completion method: - Dr. Construction expense 424,009 Cr. Construction in process 48,000 Cr. Revenue from long term contracts 376,009 Completed contract method: - Dr. Loss from long term contracts 48,000 Cr. Construction in process 48,000
In June 2017, a single commercial customer orders 40 M612 storage units, priced at $9,400 each (with a cost per unit of $6,700). Cheyenne provides customers ordering more than 20 M612 units during a 12-month period a 4% volume discount on their entire order. On July 19, 2017, Cheyenne delivered all 40 M612 units. Cheyenne received payments for the units on August 5, 2017. Prepare the journal entries for Cheyenne on July 19, 2017 and August 5, 2017. Assume the company records sales transaction net.
- Dr. Accounts Receivable 360,960 Cr. Sales Revenue 360,960 Dr. COGS 268,000 Cr. Inventory 268,000 - Dr. Cash 360,960 Cr. Accounts Receivable 360,960
Cheyenne offers building R400, mainly to homeowners. Cheyenne will also install the building for the customer. The price for Cheyenne to deliver and install an R400 is $5,800. On a standalone basis, the building sells for $5,500 (cost $3,800), and Cheyenne estimates that the standalone selling price of the installation service (based on cost-plus estimation) is $600. (The selling of the building and the installation services are considered two performance obligations.) Cheyenne signed 17 contracts to deliver and install R400s on April 5, 2017. Customers paid the contract price in cash. The buildings were delivered and installed during May 2017. Prepare journal entries for Cheyenne for R400 in April and May 2017.
- Dr. Cash 98,600 Cr. Unearned Sales Revenue 88,902 Cr. Unearned Service Revenue 9,698 - Dr. Unearned Sales Revenue 88,902 Dr. Unearned Service Revenue 9,698 Cr. Sales Revenue 88,902 Cr. Service Revenue 9,698 - Dr. COGS 64,600 Cr. Inventory 64,600
On September 1, 2017, Cheyenne sold one of its storage units designed to be safe for hazardous materials to a manufacturer. Cheyenne accepted a 4-year, zero-interest-bearing note with face amount of $82,310. The storage unit has an inventory cost of $33,300. An interest rate of 8% is an appropriate market rate of interest for this customer. Prepare the journal entries on September 1, 2017, and December 31, 2017.
- Dr. Notes Receivable 82,310 Cr. Discount on Notes Receivable 21,810 Cr. Sales Revenue 60,500 Dr. COGS 33,300 Cr. Inventory 33,300 - Dr. Discount on Notes Receivable 1,613 Cr. Interest Revenue 1,613
The Billings on Construction in Process account is reported: - as a revenue on the income statement - in the current asset section only - in the current liability section only - in either the current asset or current liability section
Billings on Construction in Process is reported as a current asset or current liability, depending on whether its balance is larger or smaller than the Construction in Process account balance
Bret Company sold 3,000 Holsks during 2017 at a total price of $12,000,000, with a warranty guarantee that the product was free of any defects. The cost of Holsks sold is $7,200,000. The term of the assurance warranty is two years, with an estimated cost of $80,000. In addition, Bret sold extended warranties related to 1,100 Holsks for 3 years beyond the 2-year period for $110,000. Bret should recognize Unearned Warranty Revenue in 2017 of - $190,000 - $110,000 - $80,000 - $0
Bret should record a Warranty Liability of $80,000 on the assurance warranty, and Unearned Warranty Revenue of $110,000 on the extended warranties
Companies should use the percentage-of completion method to account for long-term construction contracts - when the company has primarily short term contracts - unless required to use the completed contract method - when estimates of progress towards satisfaction of the performance obligation (completion_ are not dependable - when there are inherent hazards in the contract beyond the normal, recurring business risks
Companies should use the percentage-of completion method to account for long-term construction contracts unless required to use the completed-contract method.
On January 1, 2017, Purdy Company enters into a contract to transfer Blue and Rain to Georgia Co. for $300,000. The contract specifies that payment for Blue will not occur until Rain is also delivered. In other words, payment will not occur until both Blue and Rain are transferred to Georgia. Purdy determines that standalone prices are $110,000 for Blue and $190,000 for Rain. Purdy delivers Blue to Georgia on February 10, 2017. On March 15, 2017, Purdy delivers Rain to Georgia. Purdy should record - accounts receivable of $300,000 on 1/1 - accounts receivable of $110,000 on 2/10 - contract asset of $110,000 on 1/1 - contract asset of $110,000 on 2/10
Conditional rights to receive consideration are reported as contract assets rather than as receivables. Thus, a contract asset of $110,000 would be reported on February 10.
Grouper Construction, Inc. began work on a $3,860,000 contract in 2017 to construct a warehouse. Grouper uses the completed-contract method. At December 31, 2017, the balances in certain accounts were Construction in Process $1,446,000, Accounts Receivable $428,000, and Billings on Construction in Process $1,176,000. Indicate how these accounts would be reported in Grouper's December 31, 2017, balance sheet.
Current Assets: Accounts receivable 428,000 Inventory: Construction in process 1,446,000 - billings on construction in process 1,176,000 = cost in excess of billings 270,000
(T/F) A nonrefundable upfront fee is generally recorded as revenue when received.
False; A nonrefundable upfront fee should generally be recorded as revenue over the periods which benefit
(T/F) Companies expense incremental costs if these costs are incurred to obtain a contract with a customer.
False; Companies capitalize incremental costs if these costs are incurred to obtain a contract with a customer. They do not expense incremental contract costs
(T/F) Conditional rights should be reported separately on the balance sheet as contract liabilities.
False; Conditional rights should be reported separately on the balance sheet as contract assets, not contract liabilities
(T/F) In a principal-agent relationship, the agent should use the gross method to recognize revenue.
False; In a principal-agent relationship, the agent should use the net method to recognize revenue
(T/F) The principal advantage of the completed-contract method is that reported revenue reflects estimates rather than waiting for final results.
False; The principal advantage of the completed-contract method is that reported revenue reflects final results rather than estimates
On January 1, 2017, Fullbright Company sold goods to Blue Dirt Company for $400,000 in exchange for a 4-year, zero-interest-bearing note with a face amount of $629,406 (imputed rate of 12%). The goods have an inventory cost on Fullbright's books of $240,000. What amount of Sales Revenue should Fullbright recognize in 2017? - $299406 - $629406 - $240000 - $400000
Fullbright should record Sales Revenue of $400,000 on January 1, 2017, which is the fair value of the inventory
On January 1, 2017, Fullbright Company sold goods to Blue Dirt Company for $400,000 in exchange for a 4-year, zero-interest-bearing note with a face amount of $629,406 (imputed rate of 12%). The goods have an inventory cost on Fullbright's books of $240,000. What amount of Interest Revenue should Fullbright recognize in 2017? - $75529 - $57352 - $48000 - $229406
Fullbright should record interest revenue of $48,000 in 2017 ($400,000, Carrying value of note X 12%, Imputed rate)
Blue-Air is selling a new model of high-efficiency air conditioner. To stimulate interest, Blue-Air is granting certain large customers the unconditional right to return these air conditioners if not fully satisfied. The right of return extends for six months. Blue-Air estimates returns of 9%. Blue-Air sells these air conditioners on account for $18,800,000 (cost $11,280,000) on April 2, 2017. Customers are required to pay the full amount due by June 15, 2017. Using both the gross and net methods, prepare the journal entry for Blue-Air on April 2, 2017 to record sales and COGS. Assume that on May 15, 2017 one customer returns air conditioners that it purchased from Blue-Air for $406,000. Prepare the journal entry to record this transaction and the receipt of cash from customers on June 15, 2017. Assume Blue-Air prepares financial statements quarterly. Prepare the necessary entries (if any) to adjust Blue-Air's financial results for the above transactions on June 30, 2017, assuming remaining expected returns of $1,210,000.
Gross Method: - Dr. Accounts Receivable 18,800,000 Cr. Sales Revenue 18,800,000 Dr. COGS 11,280,000 Cr. Inventory 11,280,000 - Dr. Sales returns and allowances 406,000 Cr. Accounts receivable 406,000 Dr. Returned inventory 243,600 Cr. COGS 243,600 Dr. Cash 1,839,400 Cr. Accounts Receivable 1,839,400 - Dr. Sales returns and allowances 1,210,000 Cr. Allowance for sales returns and allowances 1,210,000 Dr. Estimated inventory returns 726,000 Cr. COGS 726,000 Net Method: - Dr. Accounts Receivable 18,800,000 Cr. Allowance for sales returns and allowances 1,692,000 Cr. Sales revenue 17,108,000 Dr. COGS 11,280,000 Cr. Inventory 11,280,000 - Dr. Estimates Inventory returns 1,015,200 Cr. COGS 1,015,200 Dr. Allowance for sales returns and allowances 406,000 Cr. Accounts receivable 406,000 Dr. returned inventory 243,600 Cr. Estimated inventory returns 243,600 - Dr. Cash 18,394,000 Cr. Accounts Receivable 18,394,000 No entry
ELO Construction Co. began operations in 2017. Construction activity for 2017 is shown below. ELO uses the completed-contract method. Contract 1: Contract Price: $4,650,000 Billings: $4,450,000 Collections: $3,900,000 Costs: $3,700,000 Est. Completion Cost: $0 Contract 2: Contract Price: $3,600,000 Billings: $1,800,000 Collections: $1,600,000 Costs: $870,000 Est. Completion Cost: $2,030,000 Contract 3: Contract Price: $3,100,000 Billings: $1,860,000 Collections: $1,600,000 Costs: $1,680,000 Est. Completion Cost: $1,120,000 What amount of gross profit should be reported on the income statement for 2017? - $1,340,000 - $0 - $1,480,000 - $950,000
Gross profit is recognized only on the completed contract (Contract 1). Contract 1 Price, $4,650,000 - Contract 1 Costs, $3,700,000 = Contract 1 Gross Profit, $950,000.
Kingbird Inc. sells an irrigation system that cost $195,000 to McGraw Company for $375,000 on March 2, 2017. The sales price includes an installation fee. The standalone price of the installation fee is $69,000. The standalone price of the irrigation system is $342,000. The installation is considered a separate performance obligation and is expected to take 3 months to complete. Allocate Kingbird's total selling price for the irrigation system and installation to the two performance obligations (delivery of the irrigation system and installation).
Irrigation system: $312,044 Installation: $62,956
Sufjan Company has a contract to sell 200 units to a customer for $14,000. After 140 units have been delivered, Sufjan modifies the contact by promising to deliver 30 more units for an additional $60 per unit (the standalone selling price at the time of the contract modification). What is the additional revenue to be earned after the modification? - $6000 - $5400 - $6300 - $1800
Revenue earned after the modification is $6,000 computed as follows: [(60 units remaining from the original contract X $70) + (30 more units from the modification X $60)].
Which type of revenue or gain is generally recognized with the passage of time? - revenue from sales - revenue from fees or services - long term construction contracts - gain or loss from disposition
Revenue from long-term construction contracts is generally recognized as time passes
Stossel Company sells 300 units for $200 each to Liberty Inc. for cash. Stossel allows Liberty to return any unused product within 30 days and receive a full refund. The cost of each product is $120. To determine the transaction price, Stossel decides that the approach that is most predictive of the amount of consideration to which it will be entitled is the most likely amount. Using the most likely amount, Stossel estimates that ten (10) units will be returned, the costs of recovering the units will be immaterial, and the returned units are expected to be resold at a profit. What amount of refund liability should Stossel record at the time of sale? - $2000 - $800 - $1200 - $0
Stossel should record a refund liability of $2,000 (10 estimated units to be returned X $200 selling price)
Mocha purchases equipment, installation, and training from Lynne for a price of $1,000,000 and chooses Lynne to do the installation. Lynne charges the same price for the equipment irrespective of whether it does the installation or not. (Some companies do the installation themselves because they either prefer their own employees to do the work or because of relationships with other customers.) The price of the installation service is estimated to have a fair value of $20,000. The standalone selling price of the equipment is $1,000,000. The fair value of the training sessions is estimated at $40,000. Other companies can also provide these training services. Mocha is obligated to pay Lynne the $1,000,000 upon the delivery and installation of the equipment. Lynne delivers the equipment on May 1, 2017, and completes the installation of the equipment on July 1, 2017. Training related to the equipment starts once the installation is completed and lasts for 1 year. The equipment has a useful life of 8 years. What amount is recorded by Lynne as Unearned Service Revenue at 7/1/17? - $37736 - $18868 - $20000 - $0
The allocation of the revenue for this transaction follows the residual value allocation approach. As such, the standalone price of each performance obligation determines the base for the allocation as follows: (Fair value of the training session, $40,000 + Fair value of the installation, $20,000 + Fair value of equipment, $1,000,000 = $1,060,000). At July 1, revenue associated with the equipment sale and the installation would be recognized since these performance obligations have been satisfied. Lynne should record Unearned Service Revenue of $37,736 at 7/1/18 [($40,000/$1,060,000) X $1,000,000] related to the training
Under the percentage-of-completion method, how should the balances of Billings on Construction in Process and Construction in Process be reported prior to the completion of a long-term contract? - net, as revenue from construction if a credit balance, and as a loss from construction if debit balance - billings on construction in process as revenue and construction in process as inventory - net, as a current asset if a debit balance, and as a current liability if a credit balance - billings on construction in process as a deferred revenue and construction in process as a deferred expense
The balances of Billings on Construction in Process and Construction in Process should be shown at net, as a current asset if a debit balance, and as a current liability if a credit balance
One criteria that indicates that a company should disregard revenue guidance for contracts is when - each party's rights regarding the good or services to be transferred can be identified - each party can unilaterally terminate the contract without compensation - the payment terms for the goods and services to be transferred can be identified - the contract has commercial substance
The company should disregard revenue guidance to contracts if the contract is wholly unperformed, or if each party can unilaterally terminate the contract without compensation
In a consignment sale, the consignee - recognized both commission revenue and sales revenue - makes a journal entry when the consigned merchandise is received - records a payable when consigned merchandise is sold - records advertising paid for the consignment as an expense
The consignee records a payable to the consignor, not sales revenue, when consigned merchandise is sold. The consignee will later record commission revenue
Black Sea Construction Company has a contract to construct a $6,000,000 oil rig at an estimated cost of $5,300,000. The contract is to start in July 2017, and the oil rig is to be completed in October 2019. The following data pertain to the construction period. Costs to date: $1,325,000 (2017) $3,720,000 (2018) $6,300,000 (2019) Est. Cost to complete: $3,975,000 (2017) $2,480,000 (2018) 0 (2019) Progress billings during year: $1,200,000 (2017) $3,200,000 (2018) $1,600,000 (2019) Cash collected during year: $1,000,000 (2017) $2,340,000 (2018) 2,660,000 (2019) What amount of gross profit should Black Sea recognize in 2018 using the percentage-of-completion method? - $210,000 - $150,000 - $530,000 - $169,000
The entire $200,000 loss must be recognized in addition to offsetting any previously recognized gross profit. Gross profit recognized in 2017 is computed as follows: Gross Profit recognized in 2017: [(Costs to date for 2017, $1,325.000 / Cost to date for 2017, $1,325,000 + Estimated costs to complete for 2017, $3,975,000) = 25% X (Contract Price, $6,000,000 - Total estimated costs at 2017, $5,300,000)] = 25% X $700,000 = $175,000. ($175,000) + ($200,000) = ($375,000)
Black Bear Construction Company has a contract to construct a $6,000,000 bridge at an estimated cost of $5,300,000. The contract is to start in July 2017, and the bridge is to be completed in October 2019. The following data pertain to the construction period. (Note that by the end of 2018, Black Bear has revised the estimated total cost from $5,300,000 to $5,400,000.) Costs to date: $1,325,000 (2017) $3,780,000 (2018) $5,430,000 (2019) Est. Cost to complete: $3,975,000 (2017) $1,620,000 (2018) 0 (2019) Progress billings during year: $1,200,000 (2017) $3,200,000 (2018) $1,600,000 (2019) Cash collected during year: $1,000,000 (2017) $2,340,000 (2018) 2,660,000 (2019) What amount of gross profit should Black Bear recognize in 2018 using the percentage-of-completion method? - $270,000 - $245,000 - $315,000 - $0
The gross profit to be recognized in 2018 is computed as follows: 2018 Total Gross Profit to date [(Costs to date for 2018, $3,780.000 / Cost to date for 2018, $3,780,000 + Estimated costs to complete for 2018, $1,620,000) = 70% X (Contract Price, $6,000,000 - Total estimated contract costs at 2018, $5,400,000)] - Gross Profit recognized in 2017: [(Costs to date for 2017, $1,325.000 / Cost to date for 2017, $1,325,000 + Estimated costs to complete for 2017, $3,975,000) = 25% X (Contract Price, $6,000,000 - Total estimated costs at 2017, $5,300,000)] = $245,000 gross profit to be recognized for 2018
A loss in the current period on a contract expected to be profitable upon completion in a later year is: - recognized only under the percentage of completion method - not recognized under either the completed contract method or the percentage of completion method - recognized only under the completed contract method - recognized under both the completed contract method and the percentage of completion method
The loss in the current period on a contract expected to be profitable, is recognized under the percentage-of-completion method, but is not recognized under the completed contract method
The new standard, Revenue from Contracts with Customers, - adopts "earned and realized" criteria - adopts criteria that de-emphasize the importance of contracts with customers - adopts an asset-liability approach for revenue recognition - adopts a revenue-gain approach for revenue recognition
The new standard, Revenue from Contracts with Customers, adopts an asset-liability approach for revenue recognition
Which method of measuring the fair value of a performance obligation is dependent on the standalone selling prices of other goods or services promised in the contract? - residual value - standalone selling price - adjusted market assessment - expected cost plus a margin
The residual value method of measuring the fair value of a performance obligation is dependent on the standalone selling prices of other goods or services promised in the contract
In a bill-and-hold arrangement, which of the following is not one of the criteria which must be met for the customer to have obtained control of the product? - the reason for the bill and hold arrangement must be substantive - the seller cannot have the ability to use the product or to direct it to another customer - the product currently must be ready for physical transfer to the customer - the product must be physically located in the seller's warehouse
The response given is not a criteria for a bill-and-hold arrangement. For the customer to have obtained control of a product in a bill-and-hold arrangement, all of the following criteria should be met: (a) The reason for the bill-and-hold arrangement must be substantive, (b) The product must be identified separately as belonging to the customer, (c) The product currently must be ready for physical transfer to the customer, and (d) the seller cannot have the ability to use the product or to direct it to another customer
The seller of a good or service should recognize revenue when... - they identify the separate performance obligations in the contract - they identify the contract with customers - they determine the transaction price - each performance obligation is satisfied
The seller of a good or service should recognize revenue when each performance obligation is satisfied
Hendrix Inc., an equipment dealer, sells equipment on January 1, 2016, to Jimi Company for $200,000. Also, on January 1, 2016, Hendrix agrees to repurchase this equipment from Jimi Company on December 31, 2017, for a price of $233,280. At 1/1/16, Hendrix should record - a liability of $200,000 - sales revenue of $200,000 and a liability of $33,280 - sales revenue of $200,000 and interest expense of $33,280 - sales revenue of $200,000
This transaction represents a repurchase agreement. At 1/1/16, Hendrix should record a liability of $200,000 because this agreement is a financing transaction and not a sale
Black Bear Construction Company has a contract to construct a $6,000,000 bridge at an estimated cost of $5,300,000. The contract is to start in July 2017, and the bridge is to be completed in October 2019. The following data pertain to the construction period. (Note that by the end of 2018, Black Bear has revised the estimated total cost from $5,300,000 to $5,400,000.) Costs to date: $1,325,000 (2017) $3,780,000 (2018) $5,430,000 (2019) Est. Cost to complete: $3,975,000 (2017) $1,620,000 (2018) 0 (2019) Progress billings during year: $1,200,000 (2017) $3,200,000 (2018) $1,600,000 (2019) Cash collected during year: $1,000,000 (2017) $2,340,000 (2018) 2,660,000 (2019) What amount of gross profit should Black Bear recognize in 2019 using the percentage-of-completion method? - $210,000 - $150,000 - $530,000 - $169,000
Total Gross Profit in 2019: (Contract Price, $6,000,000 - Costs to date for 2019, $5,430,000) - Gross Profit recognized to date for 2018: [(Costs to date for 2018, $3,780.000 / Cost to date for 2018, $3,780,000 + Estimated costs to complete for 2018, $1,620,000) = 70% X (Contract Price, $6,000,000 - Total estimated contract costs at 2018, $5,400,000)] = $150,000
Sherman Company enters into a contract with a customer to build a warehouse for $400,000, with a performance bonus of $100,000 that will be paid based on the timing of completion. The amount of the performance bonus decreases by 20% per week for every week beyond the agreed-upon completion date. The contract requirements are similar to contracts that Sherman has performed previously, and management believes that such experience is predictive for this contract. Management estimates that there is a 50% probability that the contract will be completed by the agreed-upon completion date, a 30% probability that it will be completed 1 week late, and a 20% probability that it will be completed 2 weeks late. What is the total transaction price for this revenue arrangement? - $486000 - $480000 - $460000 - $500000
Total transaction price is $486,000 [($500,000 X 50%) + (($500,000 - $20,000 = $480,000 X 30%) + ($500,000 - $40,000 = $460,000 X 20%)]
(T/F) A contract is an agreement between two parties that creates enforceable rights or obligations.
True; A contract is an agreement between two parties that creates enforceable rights or obligations
(T/F) A performance obligation may be based on customary business practice.
True; A performance obligation may be explicit, implicit, or based on customary business practice
(T/F) Companies recognize revenue over a period of time if (1) the customer controls the asset as it is created or (2) the company does not have an alternative use for the asset, with the following conditions: (a) the customer receives benefits as the company performs, and (b) the company has a right to payment.
True; Companies recognize revenue over a period of time if (1) the customer controls the asset as it is created or (2) the company does not have an alternative use for the asset, with the following conditions: (a) the customer receives benefits as the company performs, and (b) the company has a right to payment
(T/F) Most revenue transactions pose few problems for revenue recognition because often the transaction is initiated and completed at the same time.
True; Most revenue transactions pose few problems for revenue recognition because often the transaction is initiated and completed at the same time
Reedy Builders, Inc. is using the completed-contract method for a $12,400,000 contract that will take three years to complete. Data at December 31, 2017, the end of the first year, are as follows: Costs incurred to date $5,200,000 Estimated costs to complete 7,800,000 Billings to date 4,920,000 Collections to date 4,540,000 The gross profit or loss that should be recognized for 2017 is - a $600,000 loss - $0 - a $240,000 loss - a $200,000 loss
Under both the percentage-of-completion and the completed-contract methods, the company must recognize in the current period the entire loss immediately. The entire contract loss is computed as follows: Contract Price, $12,400,000 - (Costs incurred to date, $5,200,000 + Estimated costs to complete, $7,800,000) = $600,000 loss
Under the completed contract method, the Construction in Process account balance will consist of - construction costs only - construction costs and billings - gross profit only - construction costs and gross profit
Under the completed contract method, the Construction in Process account balance consists of construction costs only
In determining the transaction price, the company must consider: - variable consideration, non cash consideration, time value of money, and consideration payable - the time value of money, but not consideration payable - non cash consideration, but not the time value of money - variable consideration, but not non cash consideration
Variable consideration, non-cash consideration, time value of money, and consideration payable must all be considered in determining the transaction price
An indication that the customer has not taken control of the good or service is - the selling company has transferred legal title to the asset - the customer has no significant risks or rewards of ownership - the selling company has right to payment for the good or service - the customer has physical possession of the asset
When the customer has significant risks or rewards of ownership, it is an indicator that the customer has obtained control, so when the customer has no significant risks or rewards of ownership, it is an indication that the customer has not taken control of the good or service
When using the percentage of completion method, the company - recognizes revenues and gross profit each period during the contract - accumulates construction costs only in an inventory account (construction in process) - accumulates progress billings in an inventory account (construction in process) - recognizes revenues and gross profit only when the contract is completed
When using the percentage of completion method, the company recognizes revenues and gross profit each period based on the progress of the construction