Intermediate Accounting: E18-1 The Smith Construction Company received a contract
Intermediate Accounting E18-1 Revenue Recognition Alternatives The Smith Construction Company received a contract on September 30, 2010 to build a warehouse over a period of 18 months. The contract price was $600,000 and the estimated cost to build was $400,000. The actual (and estimated) costs incurred and the payments made by the purchaser are as follows: Costs Payments September 30- December 31, 2010 120,000 90,000 January 1- December 31, 2011 240,000 210,000 January 1 – March 31, 2012 40,000 300,000
Required 1. Compute the amount of revenue, expense and gross profit each year for each of the following methods (enter zero where necessary): a. Revenue recognition at the time of sale (completion) b. Revenue recognition during production c. Revenue recognition at the time of cash receipt d. Cost recovery (compute only the gross profit) 2. Which method provides the most useful information to users? Under what circumstances would the other methods provide more useful information?