Blanchard Construction Company entered into a long- term construction contract with the government to build a special landing strip at an Air Force base in Saint Hubert, Québec. The project took three years and cost the government $ 12 million. Blanchard spent the following amounts each year: 2014, $ 2 million; 2015, $ 5 million; and 2016, $ 3 million. The company uses the percentage of completion method. Cost estimates equalled actual costs.
1. Determine the amount of profit that Blanchard can report each year for this project. Ignore income taxes.
2. Assume that the costs of this project could not be estimated reliably. What amount of profit should the company recognize in each of the three years? Explain.