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### 121 the life of a construction contract is 4 years the firm used the percentage of c 4297519

121. The life of a construction contract is 4 years. The firm used the percentage-of-completion method. Under this method, cash collected and revenues recognized are shown below. Total cost of the project was \$800,000. What portion of the total cost was incurred each year?

 Cash Revenue Cost Year Collected Recognized Incurred 1 \$   100,000 \$   300,000 A 2 200,000 300,000 B 3 200,000 150,000 C 4 500,000 250,000 D Total \$1,000,000 \$1,000,000 \$800,000

122. Furmanov Company started business on January 1, Year 7. It recognizes revenue and expense at the time of sale for financial reporting and uses the installment method for income tax reporting. Under the installment method, the firm recognizes revenue when it receives cash, and matches expenses with revenues based on the average cost of goods sold to sales percentage for the year in which the firm made the sale. The income tax rate is 30%. Data for Year 7 and Year 8 as reported to shareholders, appear below:

 Year 7 Year 8 Net sales on account \$2,400,000 \$3,000,000 Cash collections of Year 7 sales 1,620,000 480,000 Cash collections of Year 8 sales – 2,040,000 Cost of merchandise sold 1,440,000 1,920,000 All other (period) expenses 240,000 360,000

Required:

 a. Compute the amount of net income after taxes for financial reporting for Year 7 and Year 8. b. Compute the amount of taxable income for Year 7 and Year 8.