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. 3. Complete the information required below to prepare a partial balance sheet for 2018 and 2019 showing any items related to the contract. (Do not round intermediate calculations.) 2018 2019 Balance Sheet (Partial) Current assets: Current liabilities:

Answer 1

Solution to part 3.

Balance Sheet ( Partial)	2018		2019
Current Assets:
Accounts Receivable		$220,000		$816,000
Construction In Progress	$3,100,000		$7,900,000
Less: Billings	(2,040,000)		(6,636,000)
Costs and profit in excess of billings		$1,060,000		$1,264,000
Current Liabilities:

Workings :

Accounts receivable in 2018 = Billings during the year - Cash collections during the year

= $ 2,040,000 - $ 1,820,000

= $ 220,000

Accounts receivable in 2019 = Opening balance of accounts receivable in 2019 + Billings during the year - Cash collections during the year

= $ 220,000 + $ 4,596,000 - $ 4,000,000

= $ 816,000

Percentage of work completed in 2018 = (Total Costs incurred till date / Total costs to be incurred including current costs)

= [2,604,000 / (2,604,000 + 5,796,000)]

= ( 2,604,000 / 8,400,000)

= 31%

So, construction in progress will be the amount of work completed as a percentage of contact value,

= 31% x Contract price

= 31% x 10,000,000

= 3,100,000

Percentage of work completed in 2019 = (Total Costs incurred till date / Total costs to be incurred including current costs)

= [(2,604,000+ 4,032,000) / (2,604,000+ 4,032,000 +1,764,000 )]

= ( 6,636,000 / 8,400,000)

= 79%

So, construction in progress will be the amount of work completed as a percentage of contact value,

= 79% x Contract price

= 79% x 10,000,000

= 7,900,000

Solution to Part 4:

	2018	2019	2020
Revenue	$ 3,100,000	$ 3,630,930	$ 3,269,070
Gross Profit ( Loss)	$ 496,000	$( 189,070)	$49,070

Workings:

	2018	2019	2020
Contract Price	$ 10,000,000	$10,000,000	$10,000,000
Actual Costs to date	$ 2,604,000	$ 6,424,000	$ 9,644,000
Estimated costs to complete	$ 5,796,000	$ 3,120,000	0
Total estimated Costs	$ 8,400,000	$ 9,544,000	$ 9,644,000
Estimated Gross Profit ( loss)	$ 1,600,000	$ 456,000	$ 356,000
( Actual in 2020)

Revenue Recognition: Actual costs to date / Total estimates costs

In 2018 = $ 2,604,000 / 8,400,000 = 31% = 31% x 10,000,000 = $ 3,100,000

In 2019 = $ 6,424,000 / $ 9,544,000 = 67.3093% =( 67.3093 % x 10,000,000 - $ 3,100,000 )= $ 3,630,930

In 2020 = $ 10,000,000 - ( 3,100,000 + 3,630,930)

= $ 3,269,070

Gross Profit (loss) recognition;

In 2018 = revenue realized in 2018 - Total costs incurred in 2018

= $ 3,100,000 - $ 2,604,000

= $ 496,000

In 2019 = revenue realized in 2019 - Total costs incurred in 2019

= 3,630,930 - $ 3,820,000

= $( 189,070)

In 2020 = Total gross profit recognized on project – Gross profit recognized in 2019 – Gross profit recognized in 2018

= $ 356,000 - (189,070) - 496,000

= 49,070