Hello, I am need of help on the very last part of this problem! Please see the sections marked with a red "X" for where I need help. 

 

Revenue Recognition

At the beginning of Year 1, John Cornell decided to quit his job as a construction company supervisor and formed his own residential housing construction company. When he resigned, he had a contract to build a custom home at a price of $800,000. The full price was payable in cash when the house was finished.

 

By year-end Year 1, Cornell's new company Luxury Homes, Inc. had spent $100,000 for labor, $215,480 for materials, and $7,600 in miscellaneous expenses in connection with the construction of the new home. Cornell estimated that the project was 70% finished at year-end. In addition, construction materials on hand at year-end Year 1 had cost $5,200.

 

During the year, Luxury Homes, Inc., had also purchased a small house for $190,000, spent $64,000 fixing it up, and then sold it on November 1, Year 1, for $350,000. The buyer paid $50,000 down and signed a note for the remainder of the balance due. The note called for interest payments only at a rate of 12% per year, with a lump-sum payment for the outstanding balance payable at the end of Year 3.

 

John's wife, Karen, kept the accounting records for Luxury Homes, Inc., and on December 31, she prepared the following statement:

 

After reviewing the statement, John and Karen got into a discussion concerning the level of revenue the company had earned during the year.

John argued that all of the revenue from the sale of the renovated home, along with 70% of the expected revenue from the new construction contract, had been earned.

Karen, on the other hand, maintained that the revenue on the renovation project should be recognized only to the extent of the cash actually collected and that no revenue should be recognized on the new home construction until it was completed and available for occupancy. John and Karen agreed that there were four possible alternative approaches to measuring the company's revenue:

1. Report the entire amount of renovation revenue and a proportionate amount of the new construction contract revenue.
2. Report the entire amount of renovation revenue but none of the new construction contract revenue.
3. Report the renovation revenue in proportion to the amount of cash received and the new construction contract revenue in proportion to the amount of work completed.
4. Report the renovation revenue in proportion to the amount of cash received but none of the new construction contract revenue.

Required
Prepare the balance sheets and income statements that would result under each of the four approaches. Round your answers to the nearest dollar.

 

 

Notes:
 

• Enter all answers as positive numbers.
• Do not round until your final answer, then round to the nearest dollar.