Perasso Construction entered into a fixed-price contract with Santos Associates on April 1, 2013, to construct an office building.The total contract price for construction of the building is $5,000,000.The building was completed in 2015.Cost information for 2013 and 2014 were as follows:

20132014

Costs incurred during the year$400,000$2,200,000

Estimated costs to complete3,600,0002,600,000

Required:

1. Compute the gross profit or loss to be recognized during 2013 and 2014 applying the completed contract method.

2. Compute the gross profit or loss to be recognized during 2013 and 2014 applying the percentage-of-completion method.

3. Applying the percentage-of-completion method, how much revenue and cost of construction would the company report in the 2014 income statement?