Constructing and Assessing Income Statements Using Cost-to-Cost MethodOn March 15, 2012, Frankel Construction contracted to build a shopping center at a contract price of $120 million. The schedule of expected (which equals actual) cash collections and contract costs follow ($ millions):Year Cash Collections Cost Incurred201220132014Total$305040$ 120CostsYear incurred2012 $20132014(a) Calculate the amount of revenue, expense, and net income for each of the three years 2012 through 2014 using the cost-to-cost method.Rounding instructions: Round percentages to the nearest whole number. Use rounded percentages for remaining calculations. Round revenue and income to the nearest whole number.Enter $ answers in millions.$303520$85$85Cost-to-Cost MethodPercentRevenueof totalexpected costs recognized96 $%6%$120$Income$35(b) Which of the following statements best summarizes our conclusion about the usefulness of the cost-to-cost method for this company?OThe cost-to-cost method is not useful because it does not provide information about the total revenues over the life of the project.OThe cost-to-cost method is an acceptable method under GAAP for contracts spanning more than one accounting period.OThe cost-to-cost method does not provide a good estimate of the revenue and income earned in each period.OThe cost-to-cost method is not useful because it is so dependent upon the completion estimate used by the company and can be easily manipulated.

Contract costing is one of the costing method being used by the company for recording and accounting…

Constructing and Assessing Income Statements Using Cost-to-Cost Method On March 15, 2012, Frankel Construction contracted to build a shopping center at a contract price of $120 million. The schedule of expected (which equals actual) cash collections and contract costs follow ($ millions): Year Cash Collections Cost Incurred 2012 $30 35 20 $85 2013 2014 Total $30 50 40 $ 120 (a) Calculate the amount of revenue, expense, and net income for each of the three years 2012 through 2014 using the cost-to-cost method. Rounding instructions: Round percentages to the nearest whole number. Use rounded percentages for remaining calculations. Round revenue and income to the nearest whole number. Enter $ answers in millions. Cost-to-Cost Method Percent of total Revenue expected costs recognized Costs Year incurred 2012 S 2013 2014 $85 96 $ 96 96 $120 S Income $35 (b) Which of the following statements best summarizes our conclusion about the usefulness of the cost-to-cost method for this company? OThe cost-to-cost method is not useful because it does not provide information about the total revenues over the life of the project. OThe cost-to-cost method is an acceptable method under GAAP for contracts spanning more than one accounting period. OThe cost-to-cost method does not provide a good estimate of the revenue and income earned in each period. OThe cost-to-cost method is not useful because it is so dependent upon the completion estimate used by the company and can be easily manipulated.

14th Edition

ISBN:9781285595047

Author:Weil

Publisher:Weil

Chapter8: Revenue Recognition, Receivables, And Advances From Customers

Section: Chapter Questions

Problem 48P