In: Accounting
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.)
|
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 |