During 2020 AFCO started a construction job with a contract price of $2,500,000. The job was completed in 2022.

The following information is available:

2020 2021 2022

Costs incurred to date 600,000 1,435,000 2,100,000

Estimated costs to complete 1,400,000 615,000 0 ZERO

Billings to date 100,000 500,000 2,500,000

Collections to date 100,000 300,000 2,000,000

Instructions

(a) Compute the amount of gross profit to be recognized each year assuming the percentage-of completion method is used.

(b) Prepare all necessary journal entries for 2021.

(c) Compute the amount of gross profit to be recognized each year, assuming the completed-contract method is used.