Housing Construction Company (HCC) Has Agreed to Build a Housing

Essay

Housing Construction Company (HCC) has agreed to build a housing project for the city of New York. On January 1, 2006 the company and the city agreed on the following terms, the construction should take no more than 3 years, HCC would be paid a total of $150 million for the project; $150 million would be paid: 3 payments of $50 million each at the end of year 2006, 2007, and 2008. HCC expects contractions costs to be $50 million in year 2006, $50 million in year 2007, and $10 million in year 2008.

a. If HCC uses the completed contract method, what revenues and expenses would HCC recognize in year 2006, 2007, and 2008?
b. If HCC uses the percentage-of-completion method, what revenues and expenses would HCC recognize in year 2006, 2007, and 2008?
c. Show the balance on the construction-in-process account at the end of 2006, 2007, and 2008 (prior to the completion of the project) using both the completed contract and the percentage-of-completion methods?