Three years ago, the Smith Company entered into a contract to construct a building for a client. Smith uses the percentage-of-completion method (i.e. they recognize revenue over time). The details of the contract are summarized in the table below: Year 1 Year 2 Year 3 Billings during year $15,000 $20,000 $15,000 Cash collections during year $8,000 $24,000 $18,000 Contract price $50,000 $50,000 $50,000 Cost incurred in the year) $4,000 $24,000 $12,000 Cost incurred (running balance) $4,000 $28,000 $40,000 Estimated cost to complete $12,000 $12,000 Which of the following statements are true? (select all that apply - i.e. just one or as many as all of them) In YEAR 1, Revenue is credited for $12,500 In YEAR 2, Revenue is credited for $20,000 In YEAR 2, Expense for Construction is debited for $24,000 The Balance Sheet for the Year 1 will report a liability account with a $2,500 balance The Balance Sheet for the Year 1 will report Accounts Receivable with a $15,000 balance Question 12 15 points) (continued from the previous problem) Suppose that a surge in costs in the Year 2 makes the Smith Company realize that they are going to make a loss on this contract. Which of the following is true? They will have to recognize a portion of the loss in Year 2 and the remaining portion in Year 3, depending on the percentage of completion. They will have to bill the customer for a lower amount They will have to recognize the entire loss in Year 2, regardless of the percentage of completion They will have to switch to the "Completed Contract Method" None of the answers is correct