Bower Construction Comp

question 66

Essay

Bower Construction Comp.has consistently used the percentage-of-completion method for recognizing revenue on its long-term contracts.During 2010 Bower entered into a fixed-price contract to construct an office building for $8,000,000.Information relating to the contract is as follows:
Required (Show Calculations):
C1.Compute contract costs incurred during 2010,2011 and 2012.
2.Determine how much gross profit Bower should recognize in 2012.
3.Under what conditions would it not be reasonable for a company to use the percentage of completion method of recognizing revenue on long-term contracts?
4.If Bower had used the completed contract method of accounting for this long-term contract how much gross profit would it have earned in 2010,2011 and 2012?

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Definitions:

Tariff of Fees

A tariff of fees is a published schedule of charges or rates, especially detailing the costs associated with services provided by professionals, governments, or financial institutions.

Geographic Area

A specific location or region defined by natural or artificial boundaries.

Bid-rigging

A form of fraud in which a commercial contract is promised to one party even though for the sake of appearance several other parties also present a bid.

Collusion

A secret agreement or cooperation between parties for a deceitful or fraudulent purpose, especially to cheat or deceive others.