Stoney Construction Co. enters a 3-year contract to build a new warehouse facility. Stoney follows Completed Contract Method under U.S. GAAP and adopts progress billing accounting for its construction project. Information for Years 1, 2, and 3 is shown below:

	Year 1	Year 2	Year 3
Sales price	$ 2,800,000	$ 2,800,000	$ 2,800,000
Estimated costs	$ 1,600,000	$ 2,000,000	$ 2,000,000
Costs incurred to date (paid in cash)	$ 400,000	$ 900,000	$ 2,000,000
Billed to date	$ 250,000	$ 1,150,000	$ 2,800,000
Received in cash to date	$ 190,000	$ 950,000	$ 2,800,000

Notes:

Sales price refers to total sales price for the whole warehouse facility, and estimated costs refer to the total estimated costs of this project. According to the table above, the total contract price remains the same (never amended) during the 3 years contracting period, but total costs estimation increased in Year 2.

Costs incurred to date refers to the accumulated costs the company spent on building the facility at the end of each year. Such costs are also referred to as costs to fulfill a contract.

Billed to date refers to how much the company has billed its customer for the facility they are building so far.

Received in cash to date is the accumulated amount the company has received from its customer..

1

.Calculate the Gross Profit booked in Year 1. (0.5 points each, total 1 point)

Please show your calculation, if any, along with the numeric result.

Please support (justify) your answer with quoting from FASB codification.

2

.Prepare each of the following required journal entries (if any) for Year 1 using completed contract method (U.S. GAAP). Please show your calculation (if any) and indicate the element of each account you use. Please select account names from the provided list in Appendix. (Total 1.5 points. 0.25 points will be taken for every JE is mistaken, or every incorrect element indication.)

Record costs incurred

Record billings on contract

Record payments received

Record revenue/cost during construction period

3.

How will the construction project be shown on balance sheet at the end of Year 1? (0.5 points each, total 1.5 points.)

Please show your calculation of the balance of the project.

Which section the balance belongs to? Please choose from the follows

Assets

Liabilities

Equity

Revenue

Expense

Please briefly explain why you choose what you choose. Quote relevant FASB Codification to support your answer.

4.

Answer the following questions (Total 1point):What is the gross profit recognized in Year 3? (0.25 points each, total 0.5 points)

Please show your calculation with your calculation results

Please quote FASB codification to justify your answer. (Hint: when should you recognize gross profit or loss?)

What is the final journal entry for Year 3, assuming all the amounts as originally stated? Please select account names from accounts provided in Appendix. Please indicate the element of each account you use. (Hint: there will be two pairs of debits and credits, i.e., two journal entries. 0.25 points each, total 0.5 points.)

Entry 1

Entry 2