Question

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	$	2,581,000		$	2,347,000		$	3,049,200
Estimated costs to complete as of year-end		6,319,000			2,772,000			0
Billings during the year		2,090,000			2,838,000			5,072,000
Cash collections during the year		1,845,000			2,900,000			5,255,000

Westgate recognizes revenue over time according to percentage of completion.

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).

Then Complete the information required below to prepare a partial balance sheet for 2018 and 2019 showing any items related to the contract.

Calculate the amount of revenue and gross profit (loss) to be recognized in each of the three years assuming the following costs incurred and costs to complete information. (Do not round intermediate calculations and round your final answers to the nearest whole dollar amount. Loss amounts should be indicated with a minus sign.)

	2018			2019			2020
Cost incurred during the year	$	2,581,000		$	3,845,000		$	3,245,000
Estimated costs to complete as of year-end		6,319,000			3,145,000			0

Calculate the amount of revenue and gross profit (loss) to be recognized in each of the three years assuming the following costs incurred and costs to complete information. (Do not round intermediate calculations and round your final answers to the nearest whole dollar amount. Loss amounts should be indicated with a minus sign.)

	2018			2019			2020
Cost incurred during the year	$	2,581,000		$	3,845,000		$	4,035,000
Estimated costs to complete as of year-end		6,319,000			4,190,000			0

Answer 1

	Percentage completion method	2018	2019	2020
	Cost incurred in till previous year	0	2581000	4928000
ADD	Cost incurred during the year	2581000	2347000	3049200
	Total cost incurred till date	2581000	4928000	7977200
ADD	Estimated cost to be incurred	6319000	2772000	0
	Total estimated cost to be incurred	8900000	7700000	7977200
	Percentage of completion (A)	29%	64%	100%
	(cost incurred till date /total estimated cost )
	Total revenue (B)	10000000	10000000	10000000
	Total revenue recognized (A *B)	2900000	6400000	10000000
Less	Revenue recognized in previous year	0	2900000	6400000
	revenue recognized in current year	2900000	3500000	3600000
		2018	2019	2020
	Revenue	2900000	3500000	3600000
Less	Cost incurred	2581000	2347000	3049200
	Gross profit	319000	1153000	550800
2018
1	Construction in progress	2581000
	Accounts payable		2581000
2	Contracts receivable	2090000
	Progress billings		2090000
3	Construction in progress	319000
	Construction expense	2581000
	Construction revenue		2900000
4	Cash	1845000
	Contract receivable		1845000
2019
1	Construction in progress	2347000
	Accounts payable		2347000
2	Contracts receivable	2838000
	Progress billings		2838000
3	Construction expense	2347000
	Construction on progress	1153000
	Construction revenue		3500000
4	Cash	2900000
	Contract receivable		2900000
2020
1	Construction in progress	3049200
	Accounts payable		3049200
2	Contracts receivable	5072000
	Progress billings		5072000
3	Construction expense	3049200
	Construction on progress	550800
	Construction revenue		3600000
4	Cash	5255000
	Contract receivable		5255000