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 $150 million for the project; the $150 million would be paid in three payments of $50 million at the end of year 2006, 2007, and 2008. HCC expects contractions costs to be $50 million in year 2006, $50 million in year 2007, and $10 million in year 2008.
a. If HCC uses the completed contract method, what revenues and expenses would HCC recognize in year 2006, 2007, and 2008?
b. If HCC uses the percentage of completion method, what revenues and expenses would HCC recognize in year 2006, 2007, and 2008?