Part 2

  1. Discuss the revenue principle and the matching principle as per the generally accepted accounting principles (GAAP).
  2. Contrast the percentage-of-completion method of revenue recognition versus the completed contract method.
  3. Solve this accounting problem for the ABC grocery company relating to revenue and expense recognition as per GAAP: ABC Corporation uses the percentage-of-completion method of accounting. In 2010, ABC entered into a contract for a contract price of $2,000,000.


    Costs incurred during the year


    Estimated costs to complete as of Dec 31


    Billings during the year


    Collections during the year


    • What portion of the total contract price is recognized as revenue in 2010?
    • What is the profit recognized for 2010?
    • Prepare the journal entries for 2010 under the percentage completion method