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Required information [The following information applies to the questions displayed below.]    In 2018, the Westgate...

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:

2018 2019 2020
Cost incurred during the year $ 2,204,000 $ 3,192,000 $ 2,424,400
Estimated costs to complete as of year-end 5,396,000 2,204,000 0
Billings during the year 2,140,000 3,256,000 4,604,000
Cash collections during the year 1,870,000 3,200,000 4,930,000


Westgate recognizes revenue over time according to percentage of completion.


rev: 09_15_2017_QC_CS-99734

2-a. In the journal below, complete the necessary journal entries for the year 2018 (credit "Various accounts" for construction costs incurred).
2-b. In the journal below, complete the necessary journal entries for the year 2019 (credit "Various accounts" for construction costs incurred).
2-c. In the journal below, complete the necessary journal entries for the year 2020 (credit "Various accounts" for construction costs incurred).

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Answer #1

Solution 2a:

Computation of % of completion, revenue recognition and Gross Profit - Westgate Construction Company
Year Actual cost incurred (A) Total cost incurred till date (B) Total estimated Cost ( C ) % of completion (D) (B/C) Contract Price
(E)
Total Revenue to be recoganized (F) (E * D) Revenue for current period (G) Gross Profit (H) (G-A)
2018 $2,204,000 $2,204,000 $7,600,000 29.00% $10,000,000 $2,900,000 $2,900,000 $696,000
2019 $3,192,000 $5,396,000 $7,600,000 71.00% $10,000,000 $7,100,000 $4,200,000 $1,008,000
2020 $2,424,400 $7,820,400 $7,820,400 100.00% $10,000,000 $10,000,000 $2,900,000 $475,600
Journal Entries - Westgate Construction Company - 2018
Event Particulars Debit Credit
1 Construction in Progress Dr $2,204,000.00
       To Various Accounts $2,204,000.00
(To record construction cost incurred)
2 Accounts receivables Dr $2,140,000.00
       To Billings on construction contract $2,140,000.00
(To record progress billings)
3 Cash Dr $1,870,000.00
       To Accounts receivables $1,870,000.00
(To record collection from customer)
4 Construction in Progress Dr $696,000.00
Cost of construction Dr $2,204,000.00
       To Revenue from long term contracts $2,900,000.00
(To record revenue and gross profit)

Solution 2b:

Journal Entries - Westgate Construction Company - 2019
Event Particulars Debit Credit
1 Construction in Progress Dr $3,192,000.00
       To Various Accounts $3,192,000.00
(To record construction cost incurred)
2 Accounts receivables Dr $3,256,000.00
       To Billings on construction contract $3,256,000.00
(To record progress billings)
3 Cash Dr $3,200,000.00
       To Accounts receivables $3,200,000.00
(To record collection from customer)
4 Construction in Progress Dr $1,008,000.00
Cost of construction Dr $3,192,000.00
       To Revenue from long term contracts $4,200,000.00
(To record revenue and gross profit)

Solution 2c:

Journal Entries - Westgate Construction Company - 2020
Event Particulars Debit Credit
1 Construction in Progress Dr $2,424,400.00
       To Various Accounts $2,424,400.00
(To record construction cost incurred)
2 Accounts receivables Dr $4,604,000.00
       To Billings on construction contract $4,604,000.00
(To record progress billings)
3 Cash Dr $4,930,000.00
       To Accounts receivables $4,930,000.00
(To record collection from customer)
4 Construction in Progress Dr $475,600.00
Cost of construction Dr $2,424,400.00
       To Revenue from long term contracts $2,900,000.00
(To record revenue and gross profit)
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