At the beginning of Year 1, John Cornell decided to quit his job as a construction company supervisor and formed his own residential housing construction company. When he resigned, he had a contract to build a custom home at a price of $800,000. The full price was payable in cash when the house was completed. By year-end Year 1, Cornell's new company Luxury Homes, Inc. had spent $100,000 for labor, $215,480 for materials, and $7,600 in miscellaneous expenses in connection with the construction of the new home. Cornell estimated that the project was 70% complete at year-end. In addition, construction materials on hand at year-end Year 1 had cost $5,200. During the year, Luxury Homes, Inc., had also purchased a small house for $190,000, spent $64,000 fixing it up, and then sold it on November 1, Year 1, for $350,000. The buyer paid $50,000 down and signed a note for the remainder of the balance due. The note called for interest payments only at a rate of 12% per year, with a lump-sum payment for the outstanding balance payable at the end of Year 3. John's wife, Karen, kept the accounting records for Luxury Homes, Inc., and on December 31,