On July 15 2016 Tidnish Vessel Refitters Ltd Tidnish signed
On, July 15, 2016, Tidnish Vessel Refitters Ltd. (Tidnish) signed a contract to refit a 25-year-old supertanker to meet new environmental standards and operate more efficiently. Tidnish has provided you with the following information about the contract:
i. Tidnish expects the refitting to take three years.
ii. Tidnish will receive $20,000,000 for the refitting. Tidnish will receive payments on the following schedule:
• $4,000,000 when the contract is signed.
• $4,800,000 on June 1, 2017.
• $8,000,000 on February 1, 2018, the expected completion date of the project.
• $3,200,000 on July 15, 2019.
iii. The total cost of the refitting is expected to be $12,800,000. Costs will be incurred as follows:
• 2016: $0
• 2017: $8,000,000
• 2018: $4,800,000
• 2019: $0
iv. Other costs associated with the contract are $1,600,000 in each of 2017 and 2018.
These costs are treated as period costs in the calculation of income.
v. Tidnish's year-end is July 31.

a. Calculate revenue, expenses, gross margin, and net income for each year using the following revenue recognition methods:
i. Percentage-of-completion based on costs incurred
ii. Zero-profit
iii. Cash collection
b. Calculate the gross margin percentage and the profit margin percentage for each year.
c. Does it matter how Tidnish accounts for its revenue from the refitting contract? To whom does it matter and why?
d. Is the actual economic performance of Tidnish affected by how it accounts for the revenue from the refitting contract? Explain.

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