Problem:
Since they no longer play hockey, the Flyers are converting their practice facility into a large senior citizen's complex for a contract price of $5,000,000. This is a three-year project estimated to cost $4,000,000 and the following information is available:
(in$ thousands) year1 year2 year3
Cost incurred $1,000 1,500 1,250
estimated completion costs $3,000 1,500 0
Billing $ 750 1,750 2,500
Cash Collected $ 500 1,500 3,000
1. Refer to the above information. Using the percentage-of-completion method of revenue recognition, how much income is recognized in Year 2?
a. $250,000
b. $375,000
c. $625,000
d. $3,125,000
2. Refer to the above information. Using the percentage-of-completion method of revenue recognition, how much income is recognized in Year 3?
a. $ 375,000
b. $ 625,000
c. $ 1,000,000
d. $ 1,250,000