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How would progress billings be accounted for

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Reference no: EM132801361

Question - WOWO Group is accounting for a long-term construction contract using the percentage-of- completion method. The 4-year contract is currently in its second year. The latest estimates of total contract costs indicate that the contract will be completed at a profit to WOWO Group.

Required -

1. What is the theoretical justification for WOWO Group'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 WOWO Group's 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 first year of the 4-year contract, if using the percentage-of-completion method instead of the cost-recovery method? Discuss.

Reference no: EM132801361

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