Long-Term Contracts
Response to the following problem:
In accounting for long-term contracts (those taking longer than one year to complete), the two methods commonly followed are the percentage-ofcompletion method and the completed-contract method.
Required
1. Explain how earnings on long-term contracts are recognized and computed under these two methods.
2. Under what circumstances is it preferable to use one method over the other?
3. Why is earnings recognition as measured by interim billings not generally accepted for long-term contracts?
4. How are job costs and interim billings reflected on the balance sheet under the percentage-of-completion method and the completed-contract method?