EXERCISE 18-7 (Continued)

        (2)   Construction in Process...............................      320,000

                    ($600,000 – $280,000)

                        Materials, Cash, Payables, etc.............                           320,000

                Accounts Receivable.....................................      250,000

                    ($400,000 – $150,000)

                        Billings on Construction in Process...                           250,000

                Cash ($320,000 – $120,000)..........................      200,000

                        Accounts Receivable.............................                           200,000

                Construction in Process...............................        80,000

                        Construction Expense...........................      320,000

                        Revenues from Long-term Contract...                           400,000*

                *$1,000,000 X [($600,000 – $280,000) ÷ $800,000]

(b)   Income Statement (2005)—

                Gross profit on long-term construction contract              $  80,000

        Balance Sheet (12/31/05)—

                Current assets:

                        Receivables—construction in process                       $  80,000*

                        Inventories—construction in process totaling

                            $750,000** less billings of $400,000                         $350,000

        **$80,000 = $400,000 –         $320,000

        **Total cost to date     $600,000

        2004 Gross profit            70,000

        2005 Gross profit            80,000

                                               $750,000