In March 2024, VanHoof Engineering Ltd. (“VHEL”) was awarded an $86-million contract to construct a bridge over the South Saskatchewan River for the City of Saskatoon. VHEL estimated that it would take two years to take the project from planning through to completion. The company has a December 31 year end. VHEL’s management was unable to reasonably estimate the degree of contract completion. VHEL’s contract provides it with an enforceable right to payment for its performance to date, including a reasonable profit margin, in the event of contract cancellation. VHEL had the following information available in relation to this construction contract:

Required 

a. Determine the revenue and gross profit to be recognized for each year of the contract. 

b. Prepare all necessary journal entries for each year of the contract.

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Costs incurred during the year Total costs incurred to date Progress billings during the year Cash collected during the year 2024 $47,360,000 47,360,000 48,000,000 47,100,000 2025 $27,640,000 75,000,000 38,000,000 38,900,000