Constructing and Assessing Income Statements Using Percentage of Completion

Assume that General Electric Company agreed in February 2016 to construct an electricity generating facility for Eversource Energy, a utility serving the Boston area. The contract price of $500 million is to be paid as follows: $200 million at the time of signing; $100 million on December 31, 2016; and $200 million at completion in May 2017. General Electric incurred the following costs in constructing the power plant: $100 million in 2016, and $300 million in 2017.

a. Compute the amount of General Electric's Revenue, expense, and income for both 2016 and 2017 under the percentage-of-completion revenue of recognition method.

b. Compute the amount of GE's revenue, expense, and income for both 2016 and 2017 using the Competed contract method.

c. Discuss whether you believe that the percentage-of-completion method or the completed contract method provides a good measure of GE's performance under the contract.