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 $ 2,044,000 $ 2,628,000 $ 2,890,800 Estimated costs to complete as of year-end 5,256,000 2,628,000 0 Billings during the year 2,170,000 2,502,000 5,328,000 Cash collections during the year 1,885,000 2,600,000 5,515,000 Westgate recognizes revenue over time according to percentage of completion. Required:

Answer 1

Year 2018:

Up-to-date cost = 2,044,000

Estimated cost = 5,256,000

Total cost = 2,044,000 + 5,256,000 = 7,300,000

Percentage of completion = (Up-to-date cost / Total cost) × 100

                                = (2,044,000 / 7,300,000) × 100

                                = 28%

Amount of revenue = Total contract price × Rate of completion

                                 = 10,000,000 × 28%

                                 = $2,800,000 (Answer)

Gross profit = Amount of revenue – Cost incurred

                    = 2,800,000 – 2,044,000

                    = $756,000 (Answer)

Year 2019:

Up-to-date cost = 2,044,000 + 2,628,000 = 4,672,000

Estimated cost = 2,628,000

Total cost = 4,672,000 + 2,628,000 = 7,300,000

Percentage of completion = (Up-to-date cost / Total cost) × 100

                                = (4,672,000 / 7,300,000) × 100

                                = 64%

Amount of revenue = (Total contract price × Rate of completion) – Revenue of 2018

                                 = (10,000,000 × 64%) – 2,800,000

                                 = 6,400,000 – 2,800,000

                                = $3,600,000 (Answer)

Gross profit = Amount of revenue – Cost incurred

                   = 3,600,000 – 2,628,000

                    = $972,000 (Answer)

Year 2020:

Up-to-date cost = 2,044,000 + 2,628,000 + 2,890,800 = 7,562,800

Estimated cost = 0 (since this is the project completion year)

Total cost = 7,562,800

Percentage of completion = (Up-to-date cost / Total cost) × 100

                                = (7,562,800 / 7,562,800) × 100

                                = 100%

Amount of revenue = (Total contract price × Rate of completion) – Revenue of 2018 – Revenue of 2019

                                 = (10,000,000 × 100%) – 2,800,000 – 3,600,000

                                 = 10,000,000 – 6,400,000

                                 = $3,600,000 (Answer)

Gross profit = Amount of revenue – Cost incurred

                   = 3,600,000 – 2,890,800

                    = $709,200 (Answer)