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Computing Revenue and Gross Profit on Long$-$Term Construction Contract

Supplier Corp. enters into a government contract during the year to provide computer equipment for $$3,200,000.$ The contract consists of a single performance obligation to provide specified equipment in three years. Total costs estimated by Supplier Corp. for the contract are $$2,240,000.$ The equipment is highly specialized and has no alternative uses. As negotiated in the contract, any costs incurred by Supplier Corp. plus a specified profit margin will be paid to Supplier Corp. in the event of a contract cancellation. Actual costs incurred during the year were $$1,024,000$ including unexpected cost overruns of $$128,000$ due to labor inefficiencies.

a$.$ Would revenue be recognized over time or at a point in time for this contract?

Recognize revenue over time

b$.$ Calculate $(1)$ recognized revenue, $(2)$ the gross profit, and $(3)$ adjusted contract margin to be recorded during the year.

$\backslash$table$[[1.$ Recognized revenue,$$1,120,000x$