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) Costs Cash Collections of Construction From Customer Year 1 $40,000,000 $48,000,000 Year 2 60,000,000 60,000,000 Year 3 70,000,000 60,000,000 Year 4 30,000,000 72,000,000 $200,000,000 $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 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) Costs Cash Collections of Construction From Customer Year 1 $40,000,000 $48,000,000 Year 2 60,000,000 60,000,000 Year 3 70,000,000 60,000,000 Year 4 30,000,000 72,000,000 $200,000,000 $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

completed contract method Year 1 Year 2 Year 3 Year 4 Total Revenue 48000000 60000000 60000000 72000000 240000000 Construction cost 40000000 60000000 70000000 30000000 200000000 Net Income 8000000 0 -10000000 42000000 40000000 Percentage of completion method Year 1 Year 2 Year 3 Year 4 Total Revenue 48000000 72000000 84000000 36000000 240000000 Construction cost 40000000 60000000 70000000 30000000 200000000 Net Income 8000000 12000000 14000000 6000000 40000000 percentage of completion 20% 30% 35% 15% 100%

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