Final answer:
The main answer is that the Revenue account on the Income Statement will be misstated, showing more revenue than should be recognized if Hercules Construction incorrectly records Project #101 as 70% complete rather than the actual 50%. This overstates revenue and net income.
Step-by-step explanation:
The main answer to the question is that the Income Statement will be misstated, specifically the Revenue account. When a company uses the percentage-of-completion method, revenue is recognized based on the progress of the construction project. If Hercules Construction records the project as 70% complete while it is actually only 50% complete, it means they are recognizing more revenue than they should be at this point in time. The evenue would be overstated because it is based on a higher percentage of completion than the actual progress.For example, if the total anticipated revenue from the project is $20 million, at 50% completion only $10 million of revenue should be recognized. However, using the incorrect 70% completion rate, they would be recognizing $14 million in revenue. This would lead to an overstatement of revenue and net income for the period.In conclusion, misstating the percentage of completion for Project #101 not only affects the Work in Progress (WIP) on the Balance Sheet but also the Revenue on the Income Statement, which in turn impacts net income. It's crucial for accurate financial reporting to match the revenue recognized with the actual work completed.