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.
2010
Costs incurred during the year
600,000
Estimated costs to complete as of Dec 31
900,000
Billings during the year
400,000
Collections during the year
300,000
- 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.