On April 1, 2020, Dougherty Inc. entered into a cost plus fixed fee non-cancellable contract to construct an electric generator for Altom Corporation. At the contract date, Dougherty estimated that it would take two years to complete the project at a cost of $2 million. The fixed fee stipulated in the contract was $450,000. Dougherty appropriately accounts for this contract under the percentage-of-completion method. During 2020, Dougherty incurred costs of $800,000 related to this project. The estimated cost at December 31, 2020, to complete the contract is $1.2 million. Altom was billed $600,000 under the contract. The billings are non-refundable.

Instructions

a. Prepare a schedule to calculate the amount of gross profit to be recognized by Dougherty under the contract for the year ended December 31, 2020. Show supporting calculations in good form.

b. Show how the contract will be reported on the income statement for the year ended December 31, 2020.