Eminem Methods: Completed contract, percentage, installment, and cost recovery
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The Eminem Co. has obtained a contract to build a music center at Seaport Village. The center will take three years to construct and will require of Eminem cash outflows of $1.0 million, $0.5 million, and $0.5 million in years 1, 2, and 3, respectively. Eminem will receive the $3 million contract price in three equal installments of $1 million. As manager of this project, you have four revenue recognition choices.
1. completed contract
2. Percentage-of-completion
3. Installment basis
4. Cost recovery basis
In each blank, type in an ending balance of each account before closing under each method
Completed contract method
Year 1 Year 2 Year 3
C-I-P
Construction revenues
Construction cost
Percentage-of-Completion
Year 1 Year 2 Year 3
C-I-P
Construction revenues
Construction cost
Installment method
Year 1 Year 2 Year 3
C-I-P
Construction revenues
Construction cost
Cost Recovery method
Year 1 Year 2 Year 3
C-I-P
Construction revenues
Construction cost
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Solution Summary
The solution completes the table as requested and also provides explanations about the choice of methods for reporting long term contracts.
Solution Preview
1. Completed contract method recognizes revenue and expense ONLY when the contract is completed and title is transferred.
CIP is only the cumulative project costs.
2. Percentage-of-Completion method recognizes profit corresponding to the percentage of ...
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