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On February 1, 2020, Mega Contractor agreed to construct a building at a contract price...

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Accounting

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On February 1, 2020, Mega Contractor agreed to construct a building at a contract price of $4,600,000. Mega estimated total construction costs would be $4,000,000 initially and the project would be finished in 2022. Information relating to the costs and billings for this contract is as follows: 2020 2021 2022 Costs incurred during the current period $1,400,000 $1,525,000 $1,575,000 2,600,000 1,575,000 -0- Estimated costs to complete Customer billings during the current period 1,600,000 1,800,000 1,200,000 Instructions: a. Using the percentage-of-completion method, compute the estimated gross profit (loss) that would be recognized during each year of the construction. Prepare all the necessary journal entries for the year 2021 and 2022. b. How the percentage-of-completion method for long-term construction contract is not an exact application of revenue recognition principle? What are the rationales of using percentage-of- completion method

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