Sahtlam Ltd. (Sahtlam) is a small construction company in northern Ontario. Sahtlam recently signed a contract to build a new town hall in one of the region's larger cities. Sahtlam will receive $25,000,000 from the city for building the town hall and will have to pay the costs of construction from that amount.
Construction will begin in September 2017 and is expected to be completed in March 2019. Sahtlam's year-end is December 31. Sahtlam estimates that construction costs in each year will be:
The city paid $7,000,000 when the contract was signed and will pay $6,000,000 on January 1, 2018, 2019, and 2020.
Calculate the amount of revenue and expense that Sahtlam would recognize in each year of the contract using the percentage-of-completion and zero-profit methods. Assume the actual costs incurred equal the estimated costs.