On March 31, 2020, Big Boats Company entered into a contract with Vacations Unlimited to produce a state-of-the-art cruise ship to be completed within three years. Big Boats estimated the total cost of building the ship at $300,000,000. The contract price was $400,000,000. The ship was completed on February 15, 2023.

a. What tax accounting method must Big Boats use for the contract? Why?

b. Using the financial data provided relating to the contract’s performance, complete the following schedule.

c. What are the consequences of the total cost of $360,000,000 exceeding the estimated total cost of $300,000,000?

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Date 12/31/20 12/31/21 12/31/22 12/31/23 Total Costs Incurred to Date $ 90,000,000 150,000,000 270,000,000 360,000,000 Total Percentage of Contract Completed N/A Current-Year Revenue Accrued Current-Year Costs Deductible