In 2014, Aldcorn Construction Corp. began construction work on a three-year, $ 10-million contract. Aldcorn uses the percentage-of-completion method for financial accounting purposes. The income to be recognized each year is based on the proportion of costs incurred out of the total estimated costs for completing the contract. The financial statement presentations for this contract at December 31, 2014, are as follows:

Instructions
Under the earnings approach:
(a) How much cash was collected in 2014 on this contract?
(b) What was the initial estimated total gross profit before tax on this contract?
(c) What is the relationship between the balances in the Construction in Process and Contract Billings accounts during the contract? Is one always more than the other? Is there a predictable ratio between the two account balances during the progress of the contract?

Balance Sheet $996,500 Accounts receivable-construction contract billings Construction in process Less contract billings Cost of uncompleted contract in excess of billings $2,015,000 1,236,500 778,500 Income Statement Income (before tax) on the contract recognized in 2014 $863,629