Question 2 Revenue Recognition (12 marks, suggested time 16 minutes) Sydney Crobsy Ltd. ("SCL"), a construction company with a December 31st year-end, specializes in building hockey arenas. In early 2017, SCL accepted a 4-year contract to build an arena for a new NHL hockey team in Seattle Washington. The Board of Directors of the Seattle team officially approved a payment plan whereby SCL will receive $500 million for the stadium as follows: 2017 - $50 million; 2018 - $100 million; 2019 - $250 million; 2020 - $100 million (payable 30 days after the completion of the stadium). When SCL accepted the contract, it believed that the gross profit on the stadium would be 20%. The following information summarizes actual and estimated construction costs related to the arena: Year Actual Construction costs incurred in the year 75,000,000 225,000,000 175,000,000 Estimated costs to complete the project 335,000,000 150,000,000 90,000,000 2017 2018 2019 The company's accountant has not recognized any revenue on the arena as he believes it is more appropriate to wait until the project is complete and all costs are known. SCL's bank manager indicates that all of his other construction clients recognize income on such projects on a yearly basis. a) Identify the accounting method that the bank manager is referring to and discuss why would such a method is seen as more appropriate than waiting until the project is completed? When would it be inappropriate to use this method? (3 marks) b) Assuming the company adopted the accounting policy identified by the Bank Manager determine the amount of revenue, cost, gross profit and any other adjustments that would be reported for each of the following years in the table below. Please use 4 decimal points in calculating % completed. (9 marks)