Question

Required information (The following information applies to the questions displayed below.) In 2018, the Westgate Construction Company entered into a contract to construct a road for Santa Clara County for $10,000,000. The road was completed in 2020. Information related to the contract is as follows: 2020 $1,940,400 Cost incurred during the year Estimated costs to complete as of year-end Billings during the year Cash collections during the year 2018 $2,604,000 5,796,000 2,040,000 1,820,000 2019 $4,032,000 1,764,000 4,596,000 4,000,000 3,364,000 4,180,000 Westgate recognizes revenue over time according to percentage of completion. Required: 1. Calculate the amount of revenue and gross profit (loss) to be recognized in each of the three years. (Do not round intermediate calculations. Loss amounts should be indicated with a minus sign.) 2018 2019 2020 Revenue Gross profit (loss)

Answer 1

2018 2020 $3,364,000 Billings during the year $2,040,000 Costs incurred during the year Cumulative Costs to date Add: Estimated costs to complete as of year-end Estimated total costs 2018 $2,604,000 $2,604,000 $5,796,000 $8,400,000 2019 $4,596,000 2019 $4,032,000 $6,636,000 $1,764,000 $8,400,000 2020 $1,940,400 $8,576,400 [2019=$2604000+$4032000; 2020=$6636000+$1940400] $0 $8,576,400 Therefore, % of completion 31.00% 79.00% 100.00% [For 2018: $2604000 / $8400000 = 31%; For 2019: $6636000 / $8400000 = 79%; For 2020: $8576400 / $8576400 = 100%] Contract price of this project Less: Cumulative cost to date till 2020 This contract's estimated gross profit when negotiated $10,000,000 [$2040000 + $4596000 + $3364000] $8,576,400 (As calculated above] $1,423,600 --> Spread over 3 years of contract as below Contract value completed Less: Revenue recognized already till last year Revenue to be recognized Less: Cost incurred during the year Gross Profit (Loss) to be recognized 2018 $3,100,000 $0 $3,100,000 $2,604,000 $496,000 2019 $7,900,000 $3,100,000 $4,800,000 $4,032,000 $768,000 2020 $10,000,000 ($10000000 x 31%; $10000000 x 79%; $10000000 x 100%] $7,900,000 (Ref: Above line] $2,100,000 (based on % of completion) $1,940,400 (Given] $159,600

Account Titles Requirement-2(a) 2018 Debit Credit Requirement-2(b) 2019 Debit Credit Requirement-2(c) 2020 Debit Credit $2,604,000 $4,032,000 $1,940,400 [Cost incurred during the year] Construction in progress Various Accounts (Materials, Labor, Etc.) (To record construction costs) $2,604,000 $4,032,000 $1,940,400 $2,040,000 $4,596,000 $3,364,000 [Billings during the year] Accounts receivable Billings on construction contract (To record progress billings) $2,040,000 $4,596,000 $3,364,000 $1,820,000 $4,000,000 $4,180,000 [Given] Cash Accounts receivable (To record cash collections) $1,820,000 $4,000,000 $4,180,000 $2,604,000 $496,000 $4,032,000 $768,000 $1,940,400 $159,600 [Cost incurred during the year] [Gross Profit (Dr) or Loss (Cr) as in Part-1] $2,100,000 [Balancing figure] $3,100,000 $4,800,000 Cost of construction Construction in progress Revenue from long-term contracts (To record gross profit) Billings on construction contract Construction in progress (To close these accounts) No Entry No Entry $10,000,000 $10,000,000 [Total Contract Price]