Reference no: EM131891286

Problem

On July 30, 2017, Tucker Corporation signed a contract with Archer Associates under which Tucker agreed to (1) construct an office building on land owned by Archer, (2) accept responsibility for procuring financing for the project and finding tenants, and (3) manage the property for 30 years. The annual net income of the project was to be divided equally between the two companies. This ½ share in the profits is Tucker's only compensation for all services provided.

By June 15, 2018, the project was complete and tenants had signed leases to occupy 90% of the available space at annual rentals totaling $5,000,000. It is estimated that, after operating expenses and debt service, the annual net income will be $1,600,000. The management of Tucker Corporation believed that (a) the economic benefit derived from the contract with Archer should be reflected in its financial statements for the fiscal year ended June 30, 2018, and directed that revenue be accrued in an amount equal to the commercial value of the services provided during the year, (b) this amount be carried in contracts receivable, and (c) all related expenditures be charged against revenue.

Required: Using what you know about asset measurement and revenue and expense recognition, comment on the appropriateness of the accounting recommended by Tucker Corporation's Management.