The King Construction Company began work on a contract in 2007. The contract price is $4,000,000, and the company uses the percentage-of-completion method. Other information relating to the contract is as follows:

2007

Costs incurred during the year....... $ 800,000

Estimated costs to complete, December 31.. 2,400,000

Billings during the year............ 600,000

Collections during the year......... 400,000

Required

1. How much gross profit or loss does King recognize in 2007?

2. Prepare the appropriate sections of the 2007 income statement and ending balance sheet.