Answer: $750,000
Explanation:
Given that,
Fixed price contract = $10,000,000
Cost incurred in the first year = $3,000,000
Remaining costs to complete = $5,000,000
Tullis billed = $4,000,000 in year 1 
Collected by the end of the year = $3,500,000
Percentage of work completed = 
= 
= 37.5% 
Revenue recognized = 37.5% of $10,000,000
                                     = $3,750,000
Income recognized = Revenue recognized - Cost incurred in the first year
                                  = $3,750,000 - $3,000,000
                                  = $750,000