1. Gamma Construction

Scenario: Cash Accounting for Construction Projects

Data: Gamma Construction is a small contractor that uses cash accounting for construction projects. During the year, Gamma Construction completed two projects with the following cash flows:

• Project A: Cash receipts $150,000, Cash payments $120,000
• Project B: Cash receipts $180,000, Cash payments $160,000

Requirements:

1. Prepare Gamma Construction's income statement using the cash accounting method for the two projects.
2. Calculate Gamma Construction's net cash flow from construction activities.
3. Discuss the advantages and limitations of using cash accounting for construction contracts.
4. Analyze how cash accounting affects the recognition of revenue and expenses for Gamma Construction's projects.
5. Evaluate the impact of project delays and change orders on Gamma Construction's cash flow and profitability.
6. Recommend whether Gamma Construction should adopt accrual basis accounting for better financial reporting.