Philbrick Company signed a three-year contract to develop custom sales training materials and provide training to the employees of Elliot Company. The contract price is $1,200 per employee and the number of employees to be trained is 400. Philbrick can send a bill to Elliot at the end of every training session. Once developed, the custom training materials will belong to Elliot Company, but Philbrick does not consider them to be a separate performance obligation. The expected number to be trained in each year and the expected development and training costs follow.

REQUIRED:

a. For each year, compute the revenue, expense, and gross profit reported assuming revenue is recognized over time using

1. The number of employees trained as a measure of the value provided to the customer.

2. The cost incurred as a measure of the value provided to the customer.

b. Assume that Philbrick's costs are $15,000 to develop the custom training materials at the beginning of the contract and then $400 for each employee trained. Which method do you believe is more appropriate in this situation? Explain.

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Development and training Number of employees costs incurred 2019...... 2020. $ 65,000 80,000 30,000 125 200 2021 75 Total -.. 400 $175,000