On December 31, 2007, LAS1 Construction entered into a major long-term construction project with the following terms.
Total contract price ....... $3,000,000
Total expected cost ....... $2,4000,000
Construction is expected to take 3 years. Production costs and cash flows are shown in the following table.

(a) Show the gross profit for each year under both the percentage-of-completion and completed-contract methods.
(b) Assume that total projected costs increase by $100,000, and the company makes the change in estimate at December 31, 2008. Compute the gross profit for 2008 under the revised assumption.
(CFAadapted)

Transcribed Image Text:

Projected Production Costs and Cash Flows Year 2007 2008 2009 Totals Costs Incurred $ 900,000 800,000 700,000 $2,400,000 Cash Received $1,000,000 1,000,000 1,000,000 $3,000,000