In 2000, Able Builders, Inc. was awarded a contract to build a bridge for the City of Metropolis. A reliable estimate of the total cost of the contract was $60000000. The contract price was $80000000. All invoices were paid in cash in the year the invoice was submitted. A schedule of revenues received and costs incurred during the contract was as follows (in $ millions):
| 2001 | 2002 | 2003 | 2004 | |
| Amount Invoiced | 10 | 30 | 30 | 10 |
| Costs Incurred | 12 | 22 | 21 | 5 |
Under which of the following methods of revenue recognition would Able Builders recognize the highest revenue in the year 2003?（ ）
Under the installment sales method, revenue is recognized when the cash is received. Because Able Builders receives $30 million in cash (invoices were paid in cash in year they were submitted) $30 million in revenue is recognized. Note that the installment sales method would also result in the highest gross profit in 2003. Since costs are 75 percent of sales (60/80), costs of $22.5 million would be recognized resulting in a gross profit of $7.5 million.
Under the cost recovery method, revenues are recognized only to the extent of costs incurred until all costs are collected, so revenues recognized through the end of 1999 would be ($12+$22=) $34 million. In 2003, not all COGS have been collected, so revenue of $21 million would be recognized to equal the costs incurred for that year. Gross profit would be $0.
Under the completed contract method, no revenue is recognized in 2003 because all $80 million of revenue is recognized in 2004.