Donnelly Corp is building a highway for the State of Maine. The total contract price = $100 million. The project is expected to take three years. Donnelly expects to incur

$80 million of costs, and therefore it expects the gross profit on the project to be

$20 million.

A. In the first year, costs are $16 million, and Donnelly believes it is 20%

complete. Donnelly continues to believe that total costs will equal $80 million. What gross profit will Donnelly recognize in Year 1 under:

a. The percentage of completion method?

b. The completed contract method?

B. In the second year, construction was slower than expected, due to bad weather and to some unexpected construction problems. Donnelly spent $29 million in Year 2, bringing the total costs to date to $45 million (including the $16 million from Year 1). Donnelly now believes the project is 50% done, and that the total project costs will equal $90 million. What gross profit will Donnelly recognize in Year 2 under:

a. The percentage of completion method?

b. The completed contract method?

C. In the third year, there are some extra unexpected costs. Donnelly spends $47 million in Year 3, and finishes the project. The total costs over three years equal $92 million. What gross profit will Donnelly recognize in Year 1 under:

a. The percentage of completion method?

b. The completed contract method?