Housing Construction Company (HCC) has agreed to build a housing project for the city of New York. On January 1st, 2006 the company and the city agreed on the following terms: the construction should take no more than three years, and HCC would be paid a total of $300 million for the project; the $300 million would be paid in three payments of $100 million at the end of year 2006, 2007, and 2008. HCC expects contractions costs to be $100 million in year 2006, $100 million in year 2007, and $20 million in year 2008.
Question 1: If HCC uses the completed contract method, what revenues and expenses would HCC recognize in year 2006, 2007, and 2008?
Question 2: If HCC uses the percentage of completion method, what revenues and expenses would HCC recognize in year 2006, 2007, and 2008?