Final answer:
The main disadvantage of the percentage of completion method is that it may overstate profits because revenue is recognized as the project progresses, potentially before all costs are realized. This can misrepresent the company's financial health if project expenses exceed initial estimates.
Step-by-step explanation:
The student asked about the principal disadvantage of using the percentage of completion method for recognizing revenue from long-term contracts. Among the options provided, the percentage of completion method is often criticized because it may overstate profits. This method recognizes revenue and profits as a project progresses, which can lead to recognition of revenue before the costs are fully realized if the project costs more or takes longer to complete than expected. This can give a misleading impression of the financial health of a company.
It does not, generally speaking, delay revenue recognition, which is more typical of the completed contract method. It is indeed complex to implement due to the need for estimates of costs and project progress, but the complexity is not the primary disadvantage being highlighted in the context of this question. Additionally, though it may require more paperwork as compared to methods like the completed contract method, the essence of the disadvantage lies in potential inaccuracy in profit reporting, rather than the paperwork itself.