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

question 6

Essay

Housing Construction Company (HCC) has agreed to build a housing project for the city of New York. On January 1^st, 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; the $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?

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Definitions:

Gross Method

An accounting method for recording purchases at the invoice's full amount without deducting any cash discounts.

Gross Profit

The difference between sales revenue and the cost of goods sold, before deducting overheads, payroll, taxation, and interest.

Periodic Inventory System

An inventory accounting system where updates to inventory levels are made at specific intervals, rather than continuously.

Adjusted Trial Balance

A list of all accounts and their balances after adjusting entries are made, used to prepare financial statements.