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    Percentage of completion method of revenue recognition

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    Problem:
    Since they no longer play hockey, the Flyers are converting their practice facility into a large senior citizen's complex for a contract price of $5,000,000. This is a three-year project estimated to cost $4,000,000 and the following information is available:

    (in$ thousands) year1 year2 year3
    Cost incurred $1,000 1,500 1,250
    estimated completion costs $3,000 1,500 0
    Billing $ 750 1,750 2,500
    Cash Collected $ 500 1,500 3,000

    1. Refer to the above information. Using the percentage-of-completion method of revenue recognition, how much income is recognized in Year 2?

    a. $ 250,000
    b. $ 375,000
    c. $ 625,000
    d. $ 3,125,000

    2. Refer to the above information. Using the percentage-of-completion method of revenue recognition, how much income is recognized in Year 3?

    a. $ 375,000
    b. $ 625,000
    c. $ 1,000,000
    d. $ 1,250,000

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    https://brainmass.com/business/revenue-recognition/percentage-of-completion-method-of-revenue-recognition-137314

    Solution Preview

    Year 1: $1M of cost is incurred, which is 25% of the total cost. So the revenue recognized in year 1 should be 25% of $5 M which is $1.25 M

    Year 2: Estimated ...

    Solution Summary

    The solution answers the question below in great detail.

    $2.19

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