Percentage of Completion Method

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Percentage of Completion Method

Widjaja
Company is accounting for a long-term construction contract using the
percentage-of-completion method. It is a 4-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:

  1. What theoretical justification is there for Widjaja Company’s use of the percentage-of-completion method?
  2. How would progress
    billings be accounted for? Include in your discussion the
    classification of progress billings in Widjaja Company financial
    statements.
  3. 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?
  4. 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.

Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2016). Financial accounting and accounting standards. Intermediate accounting (16th ed.). (p. 1048–1049). New York, NY: John Wiley & Sons, Inc.