Simonson Construction Company won a contract to build a warehouse for Geller Company. The contract price was $12,800,000.Simonson estimated that the warehouse would take three years and cost $8,960,000 to complete. Actual and expected costs for the next three years were: Year 1 - $4,838,400 Year 2 - $2,867,200 and year 3 - $1,254,400.

• Determine how much a) revenue and b) gross profit Simonson should recognize each year using the cost-to-cost method.
• What is the major drawback of the cost-to-cost method?
• What would be Simonson's gross profit in years 1, 2 and 3 under the completed-contract method?

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