During 2014, Darwin Corporation started a construction job with a contract price of S4.2 million. Darwin ran into severe technical difficulties during construction but managed to complete the job in 2016. The following information is available:

Instructions
Under the earnings approach:
(a) Calculate the amount of gross profit that should be recognized each year under the percentage-of-completion method.
(b) Prepare the journal entries for 2015 to recognize the revenue from the contract, assuming the percentage-of-completion method is used. Explain the treatment of losses under the earnings approach for percentage-of-completion.
(c) Calculate the amount of gross profit or loss that should be recognized each year under the completed-contract method. Explain the treatment of losses under the earnings approach for completed-contract.
(d) Prepare the necessary journal entry in 2016 to close the contract accounts and to recognize the revenues and costs upon completion, assuming the completed-contract method is used.

Transcribed Image Text:

2014 $ 600,000 3,150,000 2015 $2,100,000 2,100,000 2016 Costs incurred to date Estimated costs to complete $4,100,000