1. Discuss the revenue principle and the matching principle as per the generally accepted accounting principles (GAAP).
2. Contrast the percentage-of-completion method of revenue recognition versus the completed contract method.
3. Solve this accounting problem for the ABC grocery company relating to revenue and expense recognition as per GAAP: ABC Corporation uses the percentage-of-completion method of accounting. In 2010, ABC entered into a contract for a contract price of $2,000,000.
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2010
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Costs incurred during the year
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600,000
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Estimated costs to complete as of Dec 31
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900,000
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Billings during the year
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400,000
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Collections during the year
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300,000
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- What portion of the total contract price is recognized as revenue in 2010?
- What is the profit recognized for 2010?
- Prepare the journal entries for 2010 under the percentage completion method.