The following financial statement was prepared by employees of your client, Linus Construction Company. The statement is not accompanied by footnotes, but you have discovered the following:

• The average completion period for the company's jobs is 18 months. The company's method of journalizing contract transactions is summarized in the following pro forma entries.
• Linus both owns and leases equipment used on construction jobs. Typically, its equipment lease contracts provide that Linus may return the equipment upon completion of a job or may apply all rentals in full toward purchase of the equipment. About 70 percent of lease rental payments made in the past have been applied to the purchase of equipment. While leased equipment is in use, rents are charged to the account payments made on leased equipment (except for $1 balance) and to jobs on which the equipment has been used. In the event of purchase

• The balance in the payments made on leased equipment account is transferred to the machinery and equipment account, and the depreciation and other related accounts are corrected.
  Management is unable to develop dependable estimates of costs to complete contracts in progress.

Required:
Identify the weaknesses in the financial statement and for each item identified indicate their preferable treatment and explain why the treatment is preferable.

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Linus Construction Company Statement of Financial Position December 31, 2017 Current Assets: Cash $ 182,200 220,700 Accounts receivable (less allowance of $14,000 for doubtful accounts) Materials, supplies, labor, and overhead charged to construction Materials and supplies not charged to construction Deposits made to secure performance of contracts 2,026,000 288,000 360,000 $3,076,900 Less Current Liabilities: Accounts payable to subcontractors Payable for materials and supplies Accrued payroll Accrued interest on mortgage note Estimated taxes payable Net working capital S 141,100 65.300 8,260 12,000 66,000 292,660 $2,784,240 Property, Plant, and Equipment (at cost): Cost Depreciation Value Land and equipment Machinery and equipment Payments made on leased equipment $ 983,300 $310,000 338,000 230,699 $ 673,300 905,000 230,700 567,000 $878,699 $1,240,301 11,700 $2,119,000 Deferred Charges: Prepaid taxes and other expenses Points charged on mortgage note 1,262,801 $4,047,041 10,800 Total net working capital and noncurrent assets Less Deferred Liabilities: Mortgage note payable Unearned revenue on work in progress Total net assets 300,000 1,898,000 2,198,000 $1,84,0411 Stockholders' Equity: 6% preferred stock at par value Common stock at par value Paid-in surplus Retained earnings Treasury stock at cost (370) shares) $400,000 800,000 210,000 483,641 44,000) Total stockholders' equity $1,849,041