EXERCISE 18-7 (25-30 minutes)

(a)   (1)   Gross profit recognized in 2004:

                Contract price                                                                         $1,000,000

                Costs:

                        Costs to date                                         $280,000

                        Estimated additional costs                   520,000               800,000

                Total estimated profit                                                                 200,000

                Percentage completion to date

                    ($280,000/$800,000)                                                                      35%

                Gross profit recognized in 2004                                          $     70,000

                Gross profit recognized in 2005:

                Contract price                                                                         $1,000,000

                Costs:

                        Costs to date                                         $600,000

                        Estimated additional costs                   200,000               800,000

                Total estimated profit                                                                 200,000

                Percentage completion to date

                    ($600,000/$800,000)                                                                      75%

                Total gross profit recognized                                                   150,000

                Less:  Gross profit recognized in 2004                                     70,000

                Gross profit recognized in 2005                                           $    80,000