USA Oil Pipeline Construction Rev Rec

[Nate Roberts]

We are doing a case for my accounting class and I am spinning my wheels trying to find some good answers. If anyone can point me in the right direction that would be great. I am not necessarily looking for you to give me the answer but just a nudge in the proper direction would be great.

So we are trying to determine how to recognition revenue from the following scenario:

1) Company A is contracted with Company B to build a pipeline. Company B will pay company A to build the pipeline. The construction will take 3 years. At the end Company A will retain ownership of the pipeline. After construction Company B will decide whether Company A or another company will supply oil through the pipeline.
My thoughts: Will Company A use percentage-of-completion method to account for the construction? How do they account for the ownership after that?

 

[Fidget]

You're looking for the accounting standards on revenue recognition, or construction contracts if there's a separate standard for it, and leases.