(Calculating revenue using the percentage-of-completion and completed-contract methods, LO 2, 4) Whipporwill Ltd. (Whipporwill) is a small construction company in northern Ontario. Whipporwill recently signed a contract to build a new town hall in one of the region’s larger cities. Whipporwill will receive $12,500,000 from the city for building the town hall and will have to pay the costs of construction from that amount. Construction will begin in September 2005 and is expected to be completed in March 2007. Whipporwill’s year end is December 31. Whipporwill estimates that construction costs in each year will be:

Required:
Calculate the amount of revenue and expense that Whipporwill would recognize in each year of the contract using the percentage-of-completion method and the completed-contract method. Prepare the journal entries required for each method.

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2005 2006 2007 Total Estimated costs $1,750,000 $4,500,000 $2,200,000 $8,450,000