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HEWETT-KIER CONSTRUCTION, INC. <br /> NOTES TO FINANCIAL STATEMENTS <br /> FOR THE YEAR ENDED DECEMBER 31, 1997 <br /> NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES <br /> Description of Business <br /> The Company is principally engaged as a building contractor for government <br /> projects ranging from Pensacola to the Florida Keys. <br /> Revenue and Cost Recognition <br /> Revenues from construction contracts are recognized on the percentage of <br /> completion method, measured by the percentage of costs incurred to date to <br /> current estimated total costs. <br /> Contract costs include all direct material, labor costs, payroll taxes and <br /> an allocation of operating overhead, where significant. Administrative <br /> costs are charged to operations as incurred. Provisions for estimated <br /> losses or additional losses on uncompleted contracts are recorded in the <br /> period in which such losses are determined. Changes in job performance, <br /> job conditions and estimated profitability, including those arising from <br /> contract penalty provisions and final contract settlements, may result in <br /> ® revisions to costs and income and are recognized in the period in which the <br /> revisions are determined. An amount equal to contract costs attributable <br /> to claims is included in revenues when realization is probable and the <br /> amount can be reliably estimated. <br /> Billings in excess of construction costs and recognized profit are recorded <br /> as advance billings on contracts in process. Construction costs' and <br /> recognized profit exceeding billings are recorded as unbilled work on <br /> contracts in process. <br /> Depreciation <br /> Depreciation of property and equipment is provided by use of the straight- <br /> line method over 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 <br /> as an S Corporation under certain provisions of the Internal Rrvinur Code. <br /> Under these provisions, the Company would not normally pay <br /> corporate income taxes, as taxable income and credits are passed through <br /> and taxed directly to the individual stockholder. Therefore, no provision <br /> or liability for federal or state income taxes has been included in these <br /> financial statements. <br /> Cash and Cash Equivalents <br /> Cash equivalents consist of money market funds and overnight bank <br /> investment accounts, which are carried at cost. The Company maintains <br /> sinificant byg $622 500 bal a December 31,ex199 1997 . Thee Compay deposit has insurance not experi limitations l any <br /> losses in such accounts . <br /> - 5 - <br />