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On August 24, 2019, Excelsior Corp., an accrual basis taxpayer, entered into a contract with Greene to manufacture an item that it did not keep in inventory. At the time it entered into the contract, it was anticipated that the manufacturing process would take a minimum of three years to complete. Estimated costs associated with the project were equal to $8,000,000, and proceeds to be received by Excelsior Corp. over the life of the agreement were equal to $11,500,000.

During the taxable year 2019, Excelsior Corp. incurred $1,200,000 of costs in connection with the project.

In 2020, Excelsior Corp incurred $2,320,000 of costs in connection with the project. In addition, in 2019, Excelsior Corp revised its estimate of total costs associated with the project upwards from $8,000,000 to $8,800,000.

In 2021, Excelsior incurred $4,220,000 of costs and revised its total cost estimate downwards from $8,800,000 to $8,600,000.

In 2022, Excelsior incurred $960,000 of costs to complete the project and received an $11 million check from Greene upon delivery of the item. Total costs incurred by Excelsior Corp. over the four years were equal to $8,700,000.

a) What is the amount of revenue and expense to be included by Excelsior Corp. for the years 2019, 2020, 2021 and 2022 as a result of the project? Explain your answer and show all computations.

b) What options would be available to Excelsior if it incurred only $600,000 of costs in 2019 and instead incurred $2,920,000 of costs in 2020? Explain your answer.

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