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On March 15, 2010, Frankel Construction contracted to build a shopping center at a contract price of $120 million. The schedule of expected (equals actual) cash collections and contract costs follows:
Year Cash Collections Cost Incurred
2010 $30 million $15 million
2011 50 million 40 million
2012 40 million 30 million
Total $120 million $85 million
a. Calculate the amount of revenue, expense, and income for each of the three years 2010 through 2012 using (1) the percentage-of-completion method, (2) the completed contract method, and (3) the installment method.
b. Discuss which method you believe provides the best measure of the construction company’s performance under this contract.