(Recognition of Profit on Long-Term Contracts) During 2014 AFCO started a construction job with a contract price of $2,500,000. The job was completed in 2016. The following information is available.

201420152016

Costs incurred to date$ 600,000$1,435,000$2,100,000

Estimated costs to complete1,400,000615,000-0-

Billings to date100,000500,0002,500,000

Collections to date100,000300,0002,000,000

Instructions

(a) Compute the amount of gross profit to be recognized each year assuming the percentage-ofcompletion method is used.

(b) Prepare all necessary journal entries for 2015.

(c) Compute the amount of gross profit to be recognized each year assuming the completed-contract method is used.