Village Company is accounting for a long term

construction contract #2582

Village Company is accounting for a long term construction contract where revenue is
recognized over time. The project is built to the customer’s specifications, and the customer
can make changes as construction is ongoing. It is a 3 year, fixed fee contract that is presently
in its first year. The latest reasonable estimates of total contract costs indicate that the contract
will be completed at a profit. Village will submit progress billings to the customer and has
reasonable assurance that collections on these billings will be received in each year of the
contract. The contract can be cancelled at any time by the customer who will retain control of
any work done to date. Required: 1. When should revenue from contracts be accounted for over
time versus at a point in time? 2. What facts in the preceding situation indicate that Village
should account for this long term construction contract over time? 3. How would the income
recognized in each year of this long term construction contract be determined using the cost to
cost method of determining progress toward satisfaction of the performance obligation? 4. What
is the effect on income, if any, of the progress billings and the collections on these billings?View
Solution:
Village Company is accounting for a long term construction contract

ANSWER
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