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Craig A. Smith & Associate, Inc. and MPS3D, LLC Notes to Financial Statements Note 1 — Summary of Significant Accounting Policies (continued) Leasehold Improvements The general policy for leasehold improvements are to be amortized over the shorter of the expected life of the leasehold improvement or the term of the lease. The Company is currently amortizing its leasehold improvements over the term of the lease which is sixty four months. At the termination of a lease, any balances remaining thereon are written off in the current period. The accumulated amortization is reported on the Combined Balance Sheets, with the current year's portion included on the Combined Statements of Income. Revenue and Cost Recognition The Company uses accrual basis of accounting for revenue recognition with respect to contract work. Duration of contracts vary based on scope and nature of the services. Engineering contracts for design through construction observation typically range between twelve months up to thirty six months; survey contracts typically are less than twelve months; engineering feasibility studies range from one to six months; and utility locate contracts typically are for two years with options to renew. There are also numerous small jobs within engineering, survey, or locates that are completed in days or weeks. Lump sum contract revenue is billed and recognized based upon the percentage of completion of the project. All lump sum contracts provide for billing on a monthly basis as services are rendered. Each month management reviews the cost versus budget and the actual work product produced to arrive at a percent complete by billable task. The current assets, "costs and estimated earnings in excess of billings on uncompleted contracts" represent revenues recognized in excess of amount billed to customers. Time and material contract revenue is recognized based on established hourly rates and material mark-up factors on a monthly basis and billed monthly as services are rendered. The timing of when customers are billed is generally based on advance billing terms or contingent upon completion of certain phases of the work, as stipulated in the contract. As of December 31, 2014 and 2013, costs and estimated earnings in excess of billings on uncompleted contracts are as follows: December 31. Contract costs incurred plus recognized profits to date Less: Progress billings to date Costs and estimated earnings in excess of billings on uncompleted contracts Note Receivable 2014 2013 $ 332,800 $ 489,708 262,561 378,563 $ 70,149 $ 111,145 The Company recognizes interest income related to notes receivable based on accrual basis of accounting and the terms of the related note receivable. -7- 72