Cornwell Construction Company has been operating in Pennsylvania for a number of years. During 2019, the firm contracted with the Borough of Lewisburg to build a domed sports complex. Cornwell estimated that it would take three years to complete the facility at a total cost of $25 million. The total contract price was $30 million. During 2019, construction costs of $8 million were incurred related to the sports complex; estimated additional costs to complete the project were $16 million as of December 31, 2019. Contract billings through December 31, 2019, were $9 million of which the Borough of Lewisburg had paid $7.5 million.
Required:
1. Determine the amount of revenue and income to be recognized by Cornwell Construction on the sports complex for the year ended December 31, 2019, assuming it recognizes revenue over time and uses costs incurred to measure the extent to which its performance obligation has been satisfied.
2. Determine the amount of revenue and income to be recognized by Cornwell Construction on the sports complex for the year ended December 31, 2019, assuming it recognizes revenue at a point in time when control of the completed complex is transferred to the Borough of Lewisburg.
3. How should Cromwell determine which of the two approaches is appropriate?