EXERCISE 18-4 (20-25 minutes)

(a)   Gross profit recognized in: 2004 2005 2006 Contract price $1,500,000 $1,500,000 $1,500,000 Costs: Costs to date $400,000 $935,000 $1,070,000 Estimated costs to         complete   600,000   1,000,000 165,000   1,100,000                 0   1,070,000 Total estimated profit 500,000 400,000 430,000 Percentage completed to date          40%*         85%**          100% Total gross profit recognized 200,000 340,000 430,000 Less: Gross profit recognized in previous years                 0     200,000       340,000 Gross profit        recognized in current year $   200,000 $  140,000 $     90,000 * *$400,000 ÷ $1,000,000 **$935,000 ÷ $1,100,000