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Please writing should be clear to read! Constructing and Assessing Income Statements Using Cost-to-Cost Method On March 15, 2017, Gilbert Construction contracted to build a
Please writing should be clear to read!
Constructing and Assessing Income Statements Using Cost-to-Cost Method On March 15, 2017, Gilbert Construction contracted to build a shopping center at a contract price of $220 million. The schedule of expected (which equals actual) cash collections and contract costs follow ($ millions): Year Cash Collections Cost Incurred 2017 $55 million $36 million 2018 88 million 81 million 2019 77 million 63 million Total $220 million $180 million (a) Calculate the amount of revenue, expense, and net income for each of the three years 2017 through 2019, and for all three years combined, using the cost-to-cost recognition method. Round answers to the nearest whole number. Enter $ answers in millions. Costs Year incurred 2017 $ 2018 2019 Cost-to-CostMethod Percent of total Revenue expected costs recognized Income 20 % $ 44 $ 45 % 99 18 35 % 77 14 220 $ 36 81 63 $ 180 (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 manipulatedStep by Step Solution
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