On March 1, 2007, Winter Company, entered into a contract to build an apartment building. It is estimated that the building will cost $2,000,000 and will take 3 years to complete. The contract price was $3,000,000. The following information pertains to the construction period.
2004 2005 2006
Costs incurred to date $600,000 $1,560,000 $2,100,000
Estimated costs to complete 1,400,000 390,000 -0-
Billings to date 1,050,000 2,100,000 3,000,000
Collections to date 950,000 1,950,000 2,750,000
(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.