Constructing and Assessing Income Statements Using Cost-to-Cost Method On March 15, 2012, Frankel Construction contracted to build a shopping center at a contract price of $120 million. The schedule of expected (which equals actual) cash collections and contract costs follow ($ millions):

Year	Cash Collections	Cost Incurred
2012	$ 30	$ 10
2013	50	25
2014	40	50
Total	$ 120	$ 85

(a) Calculate the amount of revenue, expense, and net income for each of the three years 2012 through 2014 using the cost-to-cost method.

Rounding instructions: Round percentages to the nearest whole number. Use rounded percentages for remaining calculations. Round revenue and income to the nearest whole number.

Enter $ answers in millions.

Cost-to-CostMethod
Year	Costs incurred	Percent of total expected costs	Revenue recognized	Income
2012	$Answer	%Answer	$Answer	$Answer
2013	Answer	Answer	Answer	Answer
2014	Answer	Answer	Answer	Answer
	$85		$120	$35

(b) Which of the following statements best summarizes our conclusion about the usefulness of the cost-to-cost method for this company?

1The cost-to-cost method is not useful because it does not provide information about the total revenues over the life of the project.

2The cost-to-cost method is an acceptable method under GAAP for contracts spanning more than one accounting period.

3The cost-to-cost method does not provide a good estimate of the revenue and income earned in each period.

4The cost-to-cost method is not useful because it is so dependent upon the completion estimate used by the company and can be easily manipulated.