Error in Recording Revenue under Long-Term Construction Contract Empire Builders uses the percentage-of-completion method of recording income under longterm construction contracts. On January 1, 2000, Empire entered into a 4-year contract with a total contract price of $30,000,000. The estimated total cost of the project at the end of each of the first 3 years and the actual cost at the end of the fourth year, the estimated percentage of completion, and the income recorded by Empire at the end of each year were as follows:

At the end of the fourth year, the controller reviewed the contract and discovered that the bookkeeper had incorrectly recorded one-fourth of the total estimated profit at the end of each year as income for the year.

a. Determine the amount that should be reported as income for each year using the percentage-of-completion method.

b. What was the amount of error in reported net income in each of the first 3 years under the contract?

c. What is the amount of the required correction to retained earnings as of January | of the fourth year?

d. What is the correct amount of income to be recognized in the fourth year of the project?

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Contract Price $30,000,000 Cost of Project $24,000,000 Estimated Profit $6,000,000 Percentage of Completion 20% 30,000,000 23,000,000 7,000,000 45 Income Recorded by Empire $1,500,000 1,750,000 30,000,000 25,000,000 5,000,000 70 1,250,000 30,000,000 24,600,000 5,400,000 100 1,350,000