Problem 18-5, Page 1 of 3, 07/28/2011, 07:03:11
BLUESTEM TRACTOR PLANT
Enter text answer here as appropriate.
P18-5, Completed Contract and Percentage of
Completion with Interim Loss
Reynolds Custom Builders (RCB) was established in 1985 by Avery Conway and initially built high-quality
customized homes under contract with specific buyers. In the 1990s, Conway’s two sons joined the
company and expanded RCB’s activities into the high-rise apartment and industrial plant markets. Upon
the retirement of RCB’s long-time financial manager, Conway’s sons recently hired Ed Borke as controller
for RCB. Borke, a former college friend of Conway’s sons, has been associated with a public accounting
firm for the last 6 years.
Upon reviewing RCB’s accounting practices, Borke observed that RCB followed the completed contract
method of revenue recognition, a carryover from the years when individual home building was the majority
of RCB’s operations. Several years ago, the predominant portion of RCB’s activities shifted to the high-rise