Question
Constructing and Assessing Income Statements Using Percentage-of Completion On March 15, 2012, Frankel Construction contracted to build a shopping center at a contract price of
Constructing and Assessing Income Statements Using Percentage-of Completion On March 15, 2012, Frankel Construction contracted to build a shopping center at a contract price of $120 million. The schedule of expected (which equals actual) cash collection and contract costs follow ($ millions):
Year | Cash Collections | Cost Incurred |
---|---|---|
2012 | $ 30 | $ 30 |
2013 | 50 | 35 |
2014 | 40 | 20 |
Total | $ 120 | $ 85 |
(a) Calculate the amount of revenue, expense, and net income for each of the three years 2012 through 2014 using the percentage-of-completion revenue recognition method. Rounding instructions: Round percentages to the nearest whole number. Use rounded percentages for remaining calculations. Round revenue and income to the nearest whole number.
Percentage of Completion Method | ||||
---|---|---|---|---|
Year | Costs incurred | Percent of total expected costs | Revenue recognized | Income |
2012 | $Answer | Answer% | $Answer | $Answer |
2013 | Answer | Answer% | Answer | Answer |
2014 | Answer | Answer% | Answer | Answer |
$85 | $120 | $35 |
(b) Which of the following statements best summarizes our conclusion about the usefulness of the percentage-of-completion method for this company?
The percentage-of-completion method does provide a good estimate of the revenue and income earned in each period.
The percentage -of-completion method is not useful because it does not provide information about the total revenues over the life of the project.
The percentage-of-completion method is not useful because it is so dependent upon the completion estimate used by the company and can be easily manipulated.
The percentage-of-completion method is not an acceptable method under GAAP.
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