A construction company entered into a fixed-price contract to build an office building for $20 million. Construction costs incurred during the first year were $6 million and estimated costs to complete at the end of the year were $9 million. During the first year the company billed its customer $7 million, of which $5 million was collected before year-end.
What would appear in the year-end balance sheet related to this contract using the percentage-of-completion method?
How much revenue and gross profit or loss will the company recognize in the first and second year if it recognizes revenue upon contract completion?