Completed Contract Method versus Percentage-of-Completion Method The Miller Comp

Question

Completed Contract Method versus Percentage-of-Completion Method The Miller Company won a contract to build a shopping center at a price of $240 million The following schedule details the estimated and actual costs of construction and the actual cash collections under the contract: Estimated (Actual) CostsCash Collections of Construction From Customer Year 1 Year 2 Year 3 Year 4 $40,000,000 60,000,000 70,000,000 30,000,000 200,000,000 $48,000,000 60,000,000 60,000,000 72,000,000 $240,000,000 Prepare an income statement for the Miller Company for each year assuming that the company recognizes revenue under the completed contract method Year 1 Year 2 Year 3 Year 4 Total Revenue Construction Cost Net Income Prepare an income statement for the Miller Company for each year assuming that the company recognizes revenue under the percentage-of-completion method Year 1 Year 2 Year 3 Year 4 Total Revenue Construction Cost Net Income

Explanation / Answer

Answer a. Miller Company Income Statement Under the Completed Contract Method Year 1 Year 2 Year 3 Year 4 Total Revenue                                   -                              -                              -          240,000,000       240,000,000 Construction Costs                                   -                              -                              -          200,000,000       200,000,000 Net Income                                   -                              -                              -            40,000,000          40,000,000 Answer b. Miller Company Income Statement Under the percentage of completion method Year 1 Year 2 Year 3 Year 4 Total Revenue                  48,000,000          72,000,000          84,000,000          36,000,000       240,000,000 Construction Costs                  40,000,000          60,000,000          70,000,000          30,000,000       200,000,000 Net Income                    8,000,000          12,000,000          14,000,000            6,000,000          40,000,000 Estimated Revenues Year 1 Year 2 Year 3 Year 4 Total Costs 40,000,000 60,000,000 70,000,000 30,000,000 200,000,000 Cummulative Costs 40,000,000 100,000,000 170,000,000 200,000,000 % of Completion 20% 30% 35% 15% Revenue Recognised                  48,000,000          72,000,000          84,000,000          36,000,000       240,000,000

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