On April 1, 2014, Lisboa Limited entered into a cost-plus-fixed fee contract to manufacture an electric generator for Martinez Corporation. At the contract date, Lisboa estimated that it would take two years to complete the project at a cost of $6.5 million. The fixed fee that is stipulated in the contract is $1.5 million. Lisboa chooses appropriately to account for this contract under the percentage-of-completion method.
During 2014, Lisboa incurred costs of $2.7 million related to the project. The estimated cost at December 31, 2014, to complete the contract is $4.9 million. Martinez was billed $600,000 under the contract.
Under the earnings approach, prepare a schedule to calculate the amount of gross profit that Lisboa should recognize under the contract for the year ended December 31, 2014. Show supporting calculations in good form.