The Maple Construction Company agreed to construct twelve monuments for the city of Elderton. The total contract price was $2.4 million, and total estimated costs were $1,140,000. The construction took place over a four-year period, and the following schedule indicates the monuments completed, costs incurred, and cash collected for each period:
REQUIRED:
a. How much revenue should Maple recognize in each of the four periods under the following three assumptions?
(1) Revenues are recognized each year in proportion to the monuments completed.
(2) Revenues are recognized each year in proportion to the percentage of costs incurred.
(3) Revenues are recognized each year in proportion to the cash collected each year.
b. For each of the three assumptions, match the appropriate amount of cost against the recognized revenue. Determine net income for each period under the three assumptions.
c. Compare the total revenue, total cost, and total net income that result from each of the three assumptions. Note that although the timing of the recognition differs across the three assumptions, the total amount of income recognized is the same.