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