The effects on income of different methods of revenue recognition
Lahmont Bridge Builders built a bridge for the state of Maryland over a two-year period. The contracted price for the bridge was $600,000. The costs incurred by Lahmont and the payments from the state of Maryland over the two-year period follow.
|
Period 1 |
Period 2 |
Total |
|
|
Cost incured by Lahmount |
$300,000 |
$100,000 |
$400,000 |
|
Payment from Maryland |
400,000 |
200,000 |
600,000 |
a. Prepare income statements for Lahmont for the two periods under the following assumptions:
(1) Revenue is recognized at the end of the project.
(2) Revenue is recognized in proportion to the costs incurred by Lahmont.
(3) Revenue is recognized when the payments are received.
b. Calculate the total net income over the two-year period under each assumption.