(Recognition of Profit on Long-Term Contracts) During 2004 Pierson Company started a construction job with a contract price of $1,500,000. The job was completed in 2006. The following information is available.
2004 2005 2006
Costs incurred to date $400,000 $935,000 $1,070,000
Estimated costs to complete 600,000 165,000 -0-
Billings to date 300,000 900,000 1,500,000
Collections to date 270,000 810,000 1,425,000
(a) Compute the amount of gross profit to be recognized each year assuming the percentage-of completion method is used.
(b) Prepare all necessary journal entries for 2005.
(c) Compute the amount of gross profit to be recognized each year assuming the completed-contract method is used.
Computations and journal entries are provided in an Excel attachment.