Income recognition for a nuclear generator manufacturer. General Electric Company agreed on June 15, Year 2, to
Question:
Income recognition for a nuclear generator manufacturer. General Electric Company agreed on June 15, Year 2, to construct a nuclear generator for Consolidated Edison Company. The contract price of \(\$ 200\) million is to be paid as follows: at the time of signing, \(\$ 20\) million; on December 31, Year 3, \(\$ 100\) million; and at completion on June 30, Year 4, \(\$ 80\) million. General Electric Company incurred the following costs in constructing the generator: Year 2, \$42 million; Year 3, \(\$ 54\) million; and Year \(4, \$ 24\) million. These amounts conformed to original expectations.
a. Calculate the amount of revenue, expense, and net income for Year 2, Year 3, and Year 4 under each of the following revenue recognition methods:
(1) Percentage-of-completion method
(2) Completed contract method
(3) Installment method
(4) Cost-recovery-first method
b. Which method do you believe provides the best measure of General Electric Company's performance under the contract? Why?
Step by Step Answer:
Financial Accounting An Introduction To Concepts Methods And Uses
ISBN: 9780324183511
10th Edition
Authors: Clyde P. Stickney, Roman L. Weil