Question

In: Accounting

In 2018, the Westgate Construction Company entered into a contract to construct a road for Santa...

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 $ 2,604,000 $ 4,032,000 $ 1,940,400
Estimated costs to complete as of year-end 5,796,000 1,764,000 0
Billings during the year 2,040,000 4,596,000 3,364,000
Cash collections during the year 1,820,000 4,000,000 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) $496,000

Solutions

Expert Solution

Calculation of the amount of revenue and gross profit to be recognized in each of the three years.
1 For 2018:
Estimated Contract revenue :          10,000,000
Estimated contract costs:
Cost Incurred during the year       2,604,000
Estimated cost to complete at year end       5,796,000            8,400,000
Estimated Gross margin            1,600,000
Measure extent of progress toward completion using cost-to-cost method (in %)
31%
(cost inccured till date -2,604,000/Estimated contract cost-8,4,00,000 )
Total amount of revenue that can be recognized for 2018
(Total estimated revenue-10,000,000 x Estimated Completed percentage- 31%)            3,100,000
Gross Profit
(revenue recognised in 2018 3,100,000 - Cost incurred during the year 2,604,000 )                496,000
2 For 2019:
Estimated Contract revenue :          10,000,000
Estimated contract costs:
Cost Incurred during the year 2018       2,604,000
Cost Incurred during the year 2019       4,032,000
Estimated cost to complete at year end       1,764,000            8,400,000
Estimated Gross margin            1,600,000
Measure extent of progress toward completion using cost-to-cost method (in %)
79%
(cost inccured till date - 2,604,000+4032000/Estimated contract cost-8400000 )
Total amount of revenue that can be recognized for 2019
(Total estimated revenue-10,000,000 x Estimated Completed percentage- 79%)       7,900,000
Less: Revenue recognised for the year 2018    (3,100,000)            4,800,000
Gross Profit
(revenue recognised in 2019 4,800,000 - Cost incurred during the year 4,032,000 )                768,000
3 For 2020:
Total amount of revenue that can be recognized for 2020
Total Estimated Contract revenue :    10,000,000
Less: Revenue recognised for the year 2018    (3,100,000)
Less: Revenue recognised for the year 2018    (4,800,000)
Amount of revenue that can be recognized for 2020            2,100,000
Total Cost Inccured during the year            1,940,400
Gross Profit
(revenue recognised in 2020 2,100,000 - Cost incurred during the year 1,940,400 )                159,600

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