61. CHARLES CROWNE COMPANY Inca meting on ner 16 1958 of he res offer ofthe Chase Covoe ‘company. pal conscion fom loa a ge dest ly Me hn (Grove, vice president and eaever, eed queso coorming te Beha he ‘Smany es wg i crding ps0 is concen contac He rem Bat Stroy aren convection bef bea by De veasrer ad fice pangs of ‘bing oly fon at x estrcionenpany cold ep sp eit co a erceuge af Conplaionr co ncompees oer buls nd ae oie eFetod ‘ol ave atl eset on coagan’s et nce ad Cicl ateman, ks ‘Crowne’ sement ariel oer wo oes who asd fra dled elation ‘tte alaives tne, aba Crowne wed athe coul een the pcennge ‘ed or signin ne tine petra pete im rom Questing ‘end abate mode He aed at be was ean at Se company wate {Glionng de job comgleton mebod of een rl ors om conc alt {he complain of te cose. ented be anginal stems were usd wo ati ‘wing companies who wet em a 8 acanso apralng a constr aby to [rfonn scones owas binge. Invew oe nay in Wich De sateen were Total often aged hy ss te sere fe ayatableaemaves see ew ‘fade sched might the spnys sors noha contac or techies ad paning verge om body comps. ‘Aster factor estoned wa te ue ose fb Ces Crowne Company de conttoninday in ene, Alhoogh ove elo ron oie excel {Gagan evoame of company ttn ie ype fer 188 Gd trea 00 ‘vounble, Ava al conser, Joba Crore bate company Wot 008 fave ofr ase tenes wt is requ othe Seed Nal Bask for Fania steers wi oie o the Second Nana ask ant ssnce fora pepsed eis sod org blleg et woul be consrced ine seng of 195k Jom wonered wheder be eponys atk cedt sanding would Be forced tyra change in aesooning meio "Ate eoctson of be wet, Sohn Crowne agreed question is emt ost tie aval alerted 1 even ete apesion to be Chasis Crowne {Coapany, sod tien sit bi commendation 9 De obe 0 Oe. ‘Company Bckgroend 1 1985, M Chars Crwoe fxn be oma mas coneacng firms 2 Sale ‘onion enloyng acre of ve men. Abugh he fn re slowly wp 01951, erCrowne hd rested ie conyaty' perans oe masonry busines, fa 1931, Mr Crowe's tn, Job, jose) ti finn ale oblning » epee in whet fegineing Story eater, te company sare a gael move Hino Be general nro eld By 1936, er was nage alos enya enero, ‘ving is major efor fo nttonl pea toh As gages, churches, and i= ‘Sou a tng on projects gene contr, te Cars Crowne Comp wily compiled eats of cto cones peje. ag wo ese costs percentage for oven an profi A ge prt of Oe estates wood be bated Be bis of ‘sont for pec prs ojo. The eer concer would en cele ‘he tal eximae fore prot an sab « i If De cont was obloed. be nctor woul hen sar ibeoniac o se wbconacos uo ta sbies ‘Be tows Bi foe pono fe pee The eoneactrecived were loos avays ofa fed pice eae. (On Hgary 1, 1957, be conpany wat norte wid Mr Cas Crowne relent ag 60% of be camo sh, et Crowe, presenta Wes, Eetsag 50%, an Lay Shan, bo was no ead 1 he Crowne, owl 10% a Belding be poston of seer ad ofc Bang.Revenue Recognition and Measurement 16 Autough the company acted‘ general contractor on all projects in which it vas engaged, coninued to perform all masonry work on its contacts In adciion, he ‘company employed a force of carpeaters on company jobs to handle all rough carpentry ‘work and also assist in supervision of company-employel labourers and the subcontractors? ‘Most work o company project was performed by subcontractors. “Me Charles Crowne frequently acted as the general superintendent on the most important company jobs while John Crowne travelled between al other jobsite carrying ‘ut general supervision and checking on work progress and performance. Vir Shane handled all office work including the compilation of estimates and proposal for new contracts, Each evening the officers met to discus the status of jobs and fuure plans of the company. Results of 1957 Because ofthe high volume of institutional construction activity, 1957 was a record year forthe Charles Crowne Company. Sales value of contacts complet in 1957 According t preliminary gues was $1, 43,303.06, a compared with the pevious high in 1953 of $819,348.76. Net profit befor axes and officers" compensation in 1957 was estimated at $106,113.74 whereas $42,809.12 had been eared in 1956 (se Exhibits 1.2, 3.4. ‘The satus report of contracts in process (see Exhibit S) as of December 31, 1957 showed that thre contracts having & loa valve of $464,464 were in various stages of ‘completion, A total cot of $190,816.52 had been incurred to date on these contracts. OF the te contracts the company bad in process atthe close of the ealendar year, ‘ovo wer for fire station and ove fora municipal garage. All contracts had been started alter August 1957 and were estimated to be completed in te spring or esly summer of 1958. No revenue or costs on these contacts had been recorded in te income Statement for 1957, Outlook for 1958 ‘The oficers of the company fl hat the construction ouUlook for their area was ‘ot {00 bight. Overall coastction activity seemed likely tobe high, but he officers ‘believed that profit margins would fal Increasing competition in he field of stttional construction was expected because a downturn in residential building wis forcing ‘residential contractors int the insivonal Fel. AS a result the company hid lowered its provision for general overhead and profit in recent bids for new contracts 10 approximately 10% ofthe contract sales value, Inthe past it had been company practice to include a prot of 10%, plus a provision for general and administrative overhead of 5% ins proposals. Although the officers realized that it was possible that the company ight register loses on ane o¢ more contacts a6 a result of bidding at a lower figure than normal, dey felt tat the loses, if incurted, would be small, and hoped that, in ‘We aggregate, volume would tend to wash out any individual los and give the company hair profit, Company records showed that where losses had been incurred on contacts inthe past, they had never exceeded 11% of the contract value. Company officers expected to submit ids in 1958 on projects tht were similar in ature to projects in progress or recently completed. As of January 8, 1958, the company ‘nad no backlog of contracts oa which it had not stated work, Activity in We graning ‘of contacs was ueully Iw in January and February but customarily picked up in March,a8 Accounting for Managers 1 was not the present nienton of company offices 10 ty 10 obtain 2onracs for prjeets having an indvidal value fo excess of $400,000. There were several reasons for this policy. Ficst was the fact tat fins desired o spread risk Between & number fof contract. Second was a consideration of Keeping the company name before the frchilcts in the area, Architects generally ated as agents for project owaors and were Usually responsible for examining te rellabiliy of contractors who were bidding on a ‘project. Contractors who were unknown or not considered reliable usually bd her bids minted from furtber consideration, The officers of the company recalled Ust it had {aken several yeas to acquaint architects Jn thelr area withthe company name and its ability to perform a job I they committed the company to one of two lage ong-erm oniract, te officers believed they would effectively remove the name of the company from the sigh of architects fora considerable period of me. They were unviling to do iis singe they fel at they would have dificulty in re-establishing the company ‘with architects when the longterm contracts were completed. ‘A thie reason for not seeking contracts over $400,000 concerned the vr important role of the bonding companies, Charles Crowne Company, Ike every canractor, was bovally required to post certain bonds withthe architect (Gr the project ewnes) which fuaranteed that the company would complete the contract according to specifications. ‘Frequently a clause was included in contracts which specified thatthe contractor would ray a penaly ifthe project was not completed by a given date. Nonflfilimeat of the Sated provisions could result in the foreitue ofthe bond and a conseqient payment ‘by tbe bonding company inthe stipulated amount of the coverage to the architect and project ovine. In order to prevent conactors from over-extending themselves, the bonding companies imposed amaximam limit onthe eontracts ist any contractors could have outsianding at any one dime, The bonding companies would not provide a bond fon contact if asa result of taking on this convact the total sales vale of oustanding ‘contracts exceeded ten times tbe cooractor's net worth, Thus, withthe Charles Crowne ‘Company's net wort as of December 31, 1957 of $123,080.52, tot contacts of $1.290,800 could be handled atthe prevent une. Therefore, Dy taking a ews having’ value over $400,000, the officers believed the company woul be rested fn salsfyng the first and second consideraions oalined above. Even ite ratio should ‘be suddenly increased, thereby allowing the company to expand its work, there would ‘be further problems of oblaning a capable work force and acquiring the necessary equipment. Accounting Process Recording of Coss. Tue company's accouming system was not complex and was capable of being handled on a parttime basis by an ovsie accountant. This accountant ‘worked two nights a week atte company offices updating the cost and gzneral ledgers, tbe general joumal, and handling ober necessary accounting work. Th: account's Iain job was to keep accurate records ofthe cous incurred for each job or contact. Separate subledgers foreach conact were kept wo faciitate this work ‘As job costs were incured by the company, they were posted of chasged to the appropriate job or contact edger after being recorded in the general joura, A voucher ‘was also made out recording the sopplier's or subcontractors name and adress along ‘wih the amount payable and Ged a a ability. Charges for company-employed labour ‘were recorded atthe Jobsite and forwarded pack othe offce. The reeowng specified foreach ma, the hours worked, bis rate, and the nature ofthe work performed. TheseRevenue Recognition and Measurement 16 recordings along with being posed to appropriate Jobs, were alo use a the bass for ‘computing pay-roll. The total of the balances inthe Job ledger accounts was the company's "workin proceis". ‘The job cost accounts tended tobe similar foreach job. Separate sub-accomnts were maintained for each subcontracts. For instance, on Job #220, a fire stam under ‘onstrvtion, there were over 20 sabeoniracts for various potions of the tal job. ‘Separate job sub-accounts were also established for major categories of dec costs Incured by the company. For example, separate job accounts were Kept for company rasonty labour and carpentry labor and for conpany-purchased masonry and carpeting Iatrials, Separate projet accounts were also provided when unusual porions of a Contract were to be completed by the coimpany. For instance, in competing Job #220 the company was to instal the side poles tobe used inthe fre station, and also erect flag pole, Costs incured for these purposes would be charged wo special slide pole ‘and flag pole accounls, In addition, jb accounts ae established forthe supervisory costs fof each job and for the cost of performance bond insurance. Finally separate account called General Conditions was also established for each §job. It vas used forall job costs not charged to ober secounts. The account conaied such items atthe cost of the consteton shack, telepbone and ober wiles, general ‘office soplies, wages of Ume-keeper and watchman (if necessary), and the wages of Tabourers that could not be easily separated into ther accounts. This accouat did not inclide any of the company’s general and administrative expenses which were not allocated t0 the Jobs Billing. On contacts in process the Chaves Crowne Company usually submitted ‘monthly "Application for Payment to the arhitect who represented the project owner. Exhibit 6 shows the detail provided on the “application.” The items with an asterisk beside them are for company portions of He job while the remainder are for subcontracted Sections of the jb. Several steps were involved in determining the amount billed by the contractor. First an officer of the company estimated the physical percentage of completion of each major portion of the contac. Thus, in the case ofthe masonry item on Exhibit 6 it ‘vas estimated that matonry work was 90% complete atthe end of the month. Since ‘masonry had been estimated at 78% of competion atthe close of the prior month, tan 128 ofthe $51,200 valu atsched to masoary, of $6,120 was deeted tobe the gross mount that shouldbe billed for the current mond. Noteworthy isthe fat that costs incuted to date as a percentage of toa estimated costs did not detemine the percenage of competion, Thus, the gr05s billing of $6,120 forthe current month cout be either ‘equal t, Ise Un, of eater than the actual costs incured in the month plus the allowances for profit and overhead that were predicated in bidding the Job. ‘Asin the cae of masonry, a siila estinating procedure was fllowed onthe other toms ofthe job. The items were then summed to obtain the gross billing forthe current ‘month, From this otal gross billing an amount called retainage, agreed tin te conuact as 10% of the gross billing, was deducted lo obtain te net billing du the contractor. ‘The application was then forwarded tothe architect who had the Job of veifying the percentage of physical eompletion claimed by the contractor, If the architect considered the percentage billed as vali, he certified the applicaion and requested ona separate form thatthe project owner forward he net billing to the contractor, The contractor usually received his progress paynent within 1S days after the date of biling.170 Accounting for Management Recording of Income. As mentioned above, We company used Ue completed ‘contract method in recording income from contacts. Under this system the profit or ass fon a contract was not booked unl he contact was completed and acorpted by the project owner. “The company recorded! the bilings, net of retanage, with an entry such as the following one for Job #220 in December = Dr Accounts Rectvale - Coats (Jab #220_ $3,960.00 Cr Workin Process (Job #220) $30960.90 ‘Using this method the work in process account for job #220 bad a eredit balance init as of December 31, 1957 which represented billings (net of retainage) In excess of costs. ‘Ate fna biling ofa cooray, the company billed the owner foal singe using the same enzy as above, and thi crediting the retainage tothe Workin-racess account. ‘When the contret was complete, the creat balance in tbe Worksin-Procest Account Was the profit on the contract. The amount was Un lose out 10 a profit and loss account. ‘ovesrions 1, Determine the eet on net income for 1957 ofthe thre incomplete poets (Exhibit 5) if ie percentage of snple ton ethos of revenue recopnition is oped ty Cates Crowne Company for faancilsatsmen Gt ot ncame x) purposes. Consider each f the flowing Inet of etinatng degree of competion (6) Peeentage of cot lsu tal sinned east. (@) Todependeat estimate of dere of completion a used by Cares Crone Company for tuling porprcs Ct maybe assed tha bilige have been troaghtup date ws of December 31, 193) 12. How wall the adoption of « percentgercompletion method be rested oa the ‘Canes Crowne Company balnnee see sf December 31, 19577 ‘3 Assume that daring Jnoary 1958, aon costs of $17,248.50 were neared on ‘projet #20. Difialiee wer encountered daring tbe month, and on Sano 31,1958 i is ‘inated cat he cost to ompete the project wll unto $100,00. Ax of Snoary 31 1958, {Gon bilingr on joe #220 tal $12,000, Using be Wo perceauge-oF-cmletion nebo, ‘seria the effet of project #229 on net inca for Jntsy. 4. What shoud Jn Crowne's recommendation be 7 Eee CHARLES CROWNE COMPANY Income Statement for Year ended December 31,1957 _—__ brome Staten for Yowr ended Deerbor 1, 57 _ Sales vale of completed conracts $1,143,303.06 ‘Cot of conse camped 10261210 Coes income from const 11719096 “Adds Discouas eed 1088.66 Les: vee ‘General td adnate expente Offices compensation sp199.88Revenue Recognition and Measurement m Net inome befor tax seora74 Feder oxer Basa Net income 2080532 Exh [CHARLES CROWNE COMPANY ‘Sales and Tncome «19521956 ‘Sales Value of Coniracte Greet Income from Contacs Profi Before® Oficers! (including Discouns Eared) ation and Tak i956 ‘$661 38878 97136550 40,8012 iss MO,sBLa2 S819St 2458942 wos4 58122050 earn s230.96e 1953 819348.76, man S947538 92 SHRe2408 Tet eunses 95148130200, eon. 5281636 eke 3 (CHARLES CROWNE COMPANY Contracts Competed in 1957 Conracte Costs Prof s s s 9061.10 139038 1072 697000 6scac0 "40340 82403.66 m29ss38 10,838.28 2365200, 2413652 4345) 6118.00 4xs.70 ars. 23300 m4130 vane 7.16400 waigriss S86. S834 ‘193024 (S34 S8011.66 5353028 agaist sasz40 saa75.78 seas "400 00 708 3 wut 70200 sra6s74 643626 T3108 an PASE 3801.30 3u102 oa 90,199.76 moa 120963 5531400 4719598 ‘BIRO 1407000 1335650 ‘i330 37508.00 mane 196736 3206.06 mao5540 121086 419.20 ssaisz2 643595 149,303 06 1.926.11219 117.9095 “During te years 1951-1956 the company ws operted as prince ‘In 1954, the company sulered lat of $691.26 ona contact having valoe of $6328 ‘This was the largest lone icuved La eceat persm4 Accounting for Management _ pmuicafion ron ava ‘FIELD COPY ‘CONTRACTOR'S APPLICATION No, ZUR ARONTECTS 00 NO. S48 PEHOD HOM at TO Det ‘To: Soy of Renter OWNER, APPLICATION IS MADE FOR PAYMENT AS SIIOWN BELOW, IN CONNECTION WITH THE Archivecterl Work —— —— Site were 3300 3130 | 350 ee BB oe »| 48) 8 Se | | ae males | a ae S is Sem, Ls ve | HS Stn | 7 Pieces a 3 = fa 7 ; Serene |B 2 sencucmse,| “St = “hin Fo Tah on 10