Income recognition for a nuclear generator manufacturer. The French energy company, Areva Group, rent1y won a $2 billion contract to build a uranium enrichment plant in Idaho Falls, Idaho, U.S. Areva began construction in 2008 and expects to complete it by 2014. Assume that the state government of Idaho agrees to pay as follows: at the time of signing on December 20, 2007, $20 million; on December 31, 2008-2013, $100 million; and at completion on December 31, 2014, $1,380 million. Assume further that Areva incurs the following costs in constructing the generator: 2008, $340 million; 2009-2013, $238 million per year, and 2014, $170 million. Areva uses a Construction in Process account to accumulate costs. 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 cash.

a. Calculate the amount of revenue, expense, and income before income taxes that Areva Group will report for years 2008-2014 under each of the following revenue recognition methods:

(1) Percentage-of-completion method.

(2) Completed contract method.

b. Show the journal entries that Areva Group will make for this contract in 2007, 2008, 2009-2013, and 2014 for each of the revenue recognition methods examined in part a.