Income recognition on long-term contracts. AICPA ADAPTED

Income recognition on long-term contracts.  AICPA ADAPTED

Cornwell Construction Company has been operating in Pennsylvania for a number of years.  During 2011, the firm contracted with the Borough of Lewisburg to build a domed sports complex.  Cornwell estimated that it would take three years to complete the facility at a total cost of $25 million.  The total contract price was $30 million.  During 2011, construction cost of $8.5 million were incurred related to the sports complex, including $500,000 in materials purchased in 2011 but not yet used; estimated additional costs to complete the project were $15.5 million as of December 31, 2011.   Contract billings through December 31, 2011, were $9 million of which the Borough of Lewisburg had paid $7.5 million.

Required:

1.       Prepare schedules to calculated the amount of income to be recognized by Cornwell Construction on the sports complex for the year ended December 31, 2011, using each of the following methods:

a.       Completed –contract method

b.      Percentage-of- completion method

2.       Prepare all necessary journal entries related to the project for 2011 assuming:

a.       The percentage-of-completion method is appropriate.

b.      The completed-contract method is appropriate