On April 13, 2009, the Pagano Construction Company entered into a three-year construction contract to build a mall for a price of $12,000,000. During 2009, costs of $3,000,000 were incurred with estimated costs of $6,000,000 yet to be incurred. Billings of $3,800,000 were sent and cash collected was $3,250,000.
In 2010, costs incurred were $4,000,000 with remaining costs estimated to be $5,600,000. 2010 billings were $3,500,000 and $3,600,000 cash was collected. The project was completed in 2011 after additional costs of $5,800,000 were incurred. The company's fiscal year-end is December 31. Arrow uses the percentage-of-completion method.
Required:
1. Calculate the amount of gross profit or loss to be recognized in each of the three years.
2. Prepare journal entries for 2009 and 2010 to record the transactions described (credit "Various accounts" for construction costs incurred).
3. Prepare a partial balance sheet to show the presentation of the project as of December 31, 2009 and 2010.