TP5. LO 9.5 You own a construction company and have recently received a contract with the local school district to refurbish one of its elementary schools. You are given an up-front payment from the school district in the amount of $5 million. The contract terms extend from years 2018 to 2020.When would you recognize revenue for this payment?What method of accounting would you use for this construction project and why?What would be the benefits and challenges with your method selection?Give an example of your distribution selection and associated costs of the project (you may estimate based on other industry competitors).What might be some benefits and challenges associated with the other method of construction revenue recognition?

Introduction: In normal cases, revenue is recognized when the work is complete. But, in case of…

Answered: When would you recognize revenue for…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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TP5. LO 9.5 You own a construction company and have recently received a contract with the local school district to refurbish one of its elementary schools. You are given an up-front payment from the school district in the amount of $5 million. The contract terms extend from years 2018 to 2020.

When would you recognize revenue for this payment?
What method of accounting would you use for this construction project and why?
What would be the benefits and challenges with your method selection?
Give an example of your distribution selection and associated costs of the project (you may estimate based on other industry competitors).
What might be some benefits and challenges associated with the other method of construction revenue recognition?

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