Final answer:
Companies must use the percentage-of-completion method when estimates of progress toward completion are reasonably dependable.
Step-by-step explanation:
The percentage-of-completion method is a way for companies to recognize revenue and expenses in long-term construction projects. It allows companies to recognize revenue and expenses proportionally to the progress made on the project, rather than waiting until the project is completed. This method requires estimates of progress toward completion, and these estimates must be reasonably dependable.
For example, let's say a construction company is building a new office building. They estimate that the project will take 2 years to complete. After the first year, they have completed 60% of the project. Under the percentage-of-completion method, the company would recognize 60% of the total revenue and expenses related to the project.