Exercise 1. Long-term contract (25 points)

On June 15, Year 1, a company entered into a long-term construction contract to build a sports arena for $410 million. The expected completion date is April 1, Year 3, just in time for the Year 3 sports season. Costs incurred and estimated costs to complete at year-end for the life of the contract are as follows ($ in millions):

	Year 1	Year 2	Year 3
Costs incurred during the year	$ 50	$ 150	$ 45
Estimated costs to complete as of December 31	200	50

Required:

1)Compute the revenue and gross profit that the company will report in its Year 1, Year 2, and Year 3 income statements related to this contract, assuming the company recognizes revenue over time according to percentage of completion.

2) Compute the revenue and gross profit that the company will report in its Year 1, Year 2, and Year 3 income statements related to this contract, assuming this project does not qualify for revenue recognition over time.

3) Prepare all necessary journal entries for each of the years.