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HEWETT-KIER CONSTRUCTION, INC. <br /> NOTES TO FINANCIAL STATEMENTS <br /> FOR THE YEAR ENDED DECEMBER 31, 1998 <br /> NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES <br /> Description of Business <br /> The Company is principally engaged as a building contractor for government projects <br /> ranging from Pensacola to the Florida Keys. <br /> Revenue and Cost Recognition <br /> Revenues from construction contracts are recognized on the percentage of completion <br /> method, measured by the percentage of costs incurred to date to current estimated total <br /> costs. <br /> Contract costs include all direct material, labor costs, payroll taxes and an allocation of <br /> operating overhead, where significant Administrative costs are charged to operations as <br /> incurred. Provisions for estimated losses or additional losses on uncompleted contracts <br /> all are recorded in the period in which such losses are determined. Changes in job <br /> performance, job conditions and estimated profitability, including those arising from <br /> contract penalty provisions and final contract settlements, may result in revisions to costs <br /> and income and are recognized in the period in which the revisions are determined. An <br /> amount equal to contract costs attributable to claims is included in revenues when <br /> realization is probable and the amount can be reliably estimated. <br /> Billings in excess of construction costs and recognized profit are recorded as advance <br /> billings on contracts in process. Construction costs and recognized profit exceeding <br /> billings are recorded as unbilled work on contracts in process. <br /> Depredation <br /> Depredation of property and equipment is provided by use of the straight-line method over , <br /> the estimated useful lives of the related assets. <br /> Income Taxes <br /> The Company, with the consent of its stockholder, has elected to be taxed as an S <br /> Corporation under certain provisions of the Internal Revenue Code. Under these <br /> provisions, the Company would not normally pay federal or state corporate income taxes, <br /> as taxable income and credits are passed through and taxed directly to the individual <br /> stockholder. Therefore, no provision or liability for federal or state income taxes has been <br /> included in these financial statements. <br /> s <br /> 5 <br /> ..,rcv.T CTCIIJ r. COMPC.NY <br />