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Constructing and Assessing Income Statements Using Cost-to-Cost Method On March 15, 2014, Frankel Construction contracted to build a shopping center at a contract price of
Constructing and Assessing Income Statements Using Cost-to-Cost Method On March 15, 2014, Frankel Construction contracted to build a shopping center at a contract price of $125 million. The schedule of expected (which equals actual) cash collections and contract costs follow ($ millions): Year Cash Collections Cost Incurred 2014 $ 30 $ 20 2015 50 45 2016 45 35 Total $ 125 $ 100 (a) Calculate the amount of revenue, expense, and net income for each of the three years 2014 through 2016 using the cost-to-cost method. Round answers to the nearest whole number. Enter $ answers in millions. Cost-to-Cost Method Year Costs incurred Percent of total expected costs Revenue recognized Income 2014 $ % $ $ 2015 % 2016 % $100 $125 $25 (b) Which of the following statements best summarizes our conclusion about the usefulness of the cost-to-cost method for this company? The cost-to-cost method is not useful because it does not provide information about the total revenues over the life of the project. The cost-to-cost method is an acceptable method under GAAP for contracts spanning more than one accounting period. The cost-to-cost method does not provide a good estimate of the revenue and income earned in each period. The cost-to-cost method is not useful because it is so dependent upon the completion estimate used by the company and can be easily manipulated
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