Final answer:
The false statement regarding recognizing revenue over time on long-term contracts is that the construction-in-progress account does not include the cumulative effect of gross profit recognition. It does include this cumulative effect, which reflects the progress towards completion and revenue recognition of the contract.
Step-by-step explanation:
The statement that is FALSE regarding recognizing revenue over time on long-term contracts is: the construction-in-progress account does not include the cumulative effect of gross profit recognition. In reality, the construction-in-progress (CIP) account does include the cumulative effect of gross profit recognition. The correct information about CIP accounts is as follows: a) is shown net of billings as a liability if the amount is less than the amount of billings. b) is an asset. c) is shown net of billings in the balance sheet.
For long-term contracts, especially those accounted for using the percentage-of-completion method, revenue and therefore gross profit are recognized based on the progress towards completion of the contract, which means that the construction-in-progress account will reflect the cumulative revenue and gross profit recognized to date.