EXERCISE 18-8 (15-20 minutes)

(a)	2004—	$480,000	X $2,200,000 = $660,000
		$1,600,000

        2005— $2,200,000 (contract price) minus $660,000 (revenue recognized in 2004) = $1,540,000 (revenue recognized in 2005).

(b)   All $2,200,000 of the contract price is recognized as revenue in 2005.

(c)   Using the percentage-of-completion method, the following entries would be made:

        Construction in Process.........................................        480,000

                Materials, Cash, Payables, etc.......................                           480,000

        Accounts Receivable..............................................        420,000

                Billings on Construction in Process............                           420,000

        Cash............................................................................        350,000

                Accounts Receivable......................................                           350,000

        Construction in Process.........................................       180,000*

        Construction Expenses..........................................        480,000

                Revenue from Long-term Contracts [from (a)]                      660,000

        *[$2,200,000 – ($480,000 + $1,120,000)] X ($480,000 ÷ $1,600,000)

        (Using the completed-contract method, all the same entries are made except for the last entry. No income is recognized until the contract is completed.)