Reference no: EM131165486

Constructing and Assessing Income Statements Using Percentage-of Completion

On March 15, 2014, Frankel Construction contracted to build a shopping center at a contract price of $125 million. The schedule of expected (which equals actual) cash collection and contract costs follow ($ millions):

2014	$ 30	$ 20
2015	50	45
2016	45	35
Total	$ 125	$ 100

(a) Calculate the amount of revenue, expense, and net income for each of the three years 2014 through 2016 using the percentage-of-completion revenue recognition method. (Round answers to the nearest whole number.)

2014	$Answer	Answer %	$Answer	$Answer
2015	Answer	Answer %	Answer	Answer
2016	Answer	Answer %	Answer	Answer
	$100		$125	$25

(b) Which of the following statements best summarizes our conclusion about the usefulness of the percentage-of-completion method for this company?

The percentage -of-completion method is not useful because it does not provide information about the total revenues over the life of the project. The percentage-of-completion method is an acceptable method under GAAP for contracts spanning more than one accounting period. The percentage-of-completion method does not provide a good estimate of the revenue and income earned in each period. The percentage -of-completion method is not useful because it is so dependent upon the completion estimate used by the company and can be easily manipulated.