On December 31, 2007, LAS1 Construction entered into a major long-term construction project with the following terms.
Total contract price ....... $3,000,000
Total expected cost ....... $2,4000,000
Construction is expected to take 3 years. Production costs and cash flows are shown in the following table.

(a) Show the gross profit for each year under both the percentage-of-completion and completed-contract methods.
(b) Assume that total projected costs increase by $100,000, and the company makes the change in estimate at December 31, 2008. Compute the gross profit for 2008 under the revised assumption.
(CFAadapted)

Projected Production Costs and Cash Flows Year 2007 2008 2009 Totals Costs Incurred $ 900,000 800,000 700,000 $2,400,000 Cash Received $1,000,000 1,000,000 1,000,000 $3,000,000