Problem:
Gina Construction Division
During the fiscal year ended November 30,2007, Gina Constgruction Division had one construction project in process. A $30,000,000 contract for construction of a civic center was granted on June 19,2007, and construction began on August 1,2007. Estimated costs of completion at the contract date were $25,000,000 over a 2-year time period from the date of the contract. On November 30, 2007, construction costs of $7,800,000 had been incurred and process billings of $9,500,000 had been made. The construction costs to complete the remainder of the project were reviewed on November 30,2007, and were estimated to amount to only $16,200,000 because of an expected decline in raw materials costs. Revenue recognition is based upon a percentage-of-completion method.
A) there are a variety of methods of revenue recognition. Define and describe each of the following methods of revenue recognition, and indicate whether each is in accordance with generally accepted accounting principles.
1) point of sale
2) completion of production
3) percentage of completion
4) Installment sazles contract
B) compute the revenue to be recognized in fiscal year 2007 for each of the three operating divisions in accordance with generally accepted accounting principles.