Income recognition for a contractor. On October 15, 2005, Flanikin Construction Company contracted to build a shopping center at a contract price of $180 million. The schedule of expected and actual cash collections and contract costs is as follows:

a. Calculate the amount of revenue, expense, and net income for each of the four years under the following revenue recognition methods:
(1) Percentage-of-completion method.
(2) Completed contract method.
b. Show the journal entries Flanikin will make in 2005, 2006, 2007, and 2008 for this Flanikin accumulates contract costs in a Contract in Process account. Although the costs involve a mixture of cash payments, credits to assets, and credits to liability accounts, assume for purposes of this problem that all costs involve credits to Accounts Payable.
c. Which method do you believe provides the better measure of Flanikin Construction Company's performance under the contract?Why?

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Cash Collections Estimated and Actual Cost Incurred Year from Customers $ 36,000,000 45,000,000 45,000,000 2005 S 12,000,000 2006 36,000,000 2007 48,000,000 2008 54,000,000 24,000,000 $120,000,000 $180,000,000