QUESTION: Specific Revenue Recognition Applications

Example: Revenue Recognition for Long-Term Contracts

Paxel Construction Company has a $30 million contract to construct a building. It estimates that it will take 3 years to complete the project. The estimated cost of the project is $21 million. Paxel incurs costs amounting to $10.5 million in Year 1, $7.35 million in Year 2, and $3.15 million in Year 3. Determine the amount of revenue and profit that the company will recognize each year according to the:

1. 1. Percentage-of-completion method
2. 2. Completed-contract method

QUESTION: INSTALMENT SALES Example:

Bingo Inc. sold property worth $500,000 and allowed the buyer to make the payment in installments. The cost of the property sold is $300,000. The first installment of $250,000 has been received in Year 1, while the rest of the payment is expected to be received in Year 2.

Calculate the amount of profit that will be recognized each year using the installment sales method and cost-recovery method.