Brierton Company enters a contract at the beginning of year 1 to build a new federal courthouse for a price of $16 million. Brierton estimates that total cost of the project will be $12 million, and will take four years to complete.
Costs incurred Payments from federal government
Year 1 $4M $2M
Year 2 $4M $2M
Year 3 $2M $6M
Year 4 $2M $6M
1. If Brierton used percentage-of-completion method to account for this project, what would they have reported as profit in year 2?
2. If Brierton used cash accounting to account for this project, what would they have reported as profit (loss) in year 2?