Yanmei Construction Company began operations on January 1, 2020. During the year, Yanmei entered into a non-cancellable contract with Lundquist Corp. to construct a manufacturing facility. At that time, Yanmei estimated that it would take five years to complete the facility at a total cost of $4,500,000. The total contract price for construction of the facility is $6,000,000. During the year, Yanmei incurred $1,185,800 in construction costs related to the project. The estimated cost to complete the contract is $4,204,200. Lundquist Corp. was billed and paid 25% of the contract price. The billings are non-refundable.

Instructions

Prepare schedules to calculate the amount of gross profit to be recognized for the year ended December 31, 2020, and the amount to be shown as contract assets or liabilities at December 31, 2020, under each of the following methods. Show supporting calculations in good form.

a. Completed-contract method.

b. Percentage-of-completion method.