E18-4B (Recognition of Profit on Long-Term Contracts) During 2007 AFCO started a construction job with a contract price of

E18-4B (Recognition of Profit on Long-Term Contracts) During 2007 AFCO started a construction job with a contract price of $2,500,000. The job was completed in 2009. The following information is available.

2007                2008                2009

Costs incurred to date              $ 600,000        $1,435,000      $2,100,000

Estimated costs to complete     1,400,000        615,000           –0–

Billings to date                                     100,000           500,000           2,500,000

Collections to date                   100,000           300,000           2,000,000

Instructions

(a) Compute the amount of gross profit to be recognized each year assuming the percentage-of completion method is used.

(b) Prepare all necessary journal entries for 2008.

(c) Compute the amount of gross profit to be recognized each year assuming the completed-contract method is used.