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	$	2,400,000		$	3,600,000		$	2,200,000
Estimated costs to complete as of year-end		5,600,000			2,000,000			0
Billings during the year		2,000,000			4,000,000			4,000,000
Cash collections during the year		1,800,000			3,600,000			4,600,000

Westgate Construction uses the completed contract method of accounting for long-term construction contracts.

Required:
1. Calculate the amount of revenue and gross profit (loss) to be recognized in each of the three years.
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).
3. Complete the information required below to prepare a partial balance sheet for 2018 and 2019 showing any items related to the contract.
4. 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.

	2018			2019			2020
Cost incurred during the year	$	2,400,000		$	3,800,000		$	3,200,000
Estimated costs to complete as of year-end		5,600,000			3,100,000			0

5. 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.

	2018			2019			2020
Cost incurred during the year	$	2,400,000		$	3,800,000		$	3,900,000
Estimated costs to complete as of year-end		5,600,000			4,100,000			0

Answer 1

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Requirement 1
	Year		Revenue	Gross Profit
	2018		$                         -	$                              -
	2019		$                         -	$                              -
	2020		$        10,000,000	$               1,800,000
	Total Revenue		$        10,000,000
	Less: Total Cost
	2018	$                                        2,400,000
	2019	$                                        3,600,000
	2020	$                                        2,200,000	$          8,200,000
	Total Gross Profit		$          1,800,000
	Journal Entries:
	Date	Account	Debit	Credit
Requirement 2a	Year 2018	Work in Progress	$          2,400,000
		Accounts Payable and others		$               2,400,000
	Year 2018	Accounts Receivable	$          2,000,000
		Billing in process		$               2,000,000
	Year 2018	Cash	$          1,800,000
		Accounts Receivable		$               1,800,000
Requirement 2b	Year 2019	Work in Progress	$          3,600,000
		Accounts Payable and others		$               3,600,000
	Year 2019	Accounts Receivable	$          4,000,000
		Billing in process		$               4,000,000
	Year 2019	Cash	$          3,600,000
		Accounts Receivable		$               3,600,000
Requirement 2c	Year 2020	Work in Progress	$          2,200,000
		Accounts Payable and others		$               2,200,000
	Year 2020	Accounts Receivable	$          4,000,000
		Billing in process		$               4,000,000
	Year 2020	Cash	$          4,600,000
		Accounts Receivable		$               4,600,000
	Year 2020	Billing in process	$        10,000,000
		Contruction Contract Revenue		$             10,000,000
		(to record revenue)
	Year 2020	Cost of Construction	$          8,200,000
		Work in Progress		$               8,200,000
		(to record cost)
Requirement 3		2018	2019
	Cash	$                                        1,800,000	$          5,400,000
	Work in process	$                                        2,400,000	$          6,000,000
	Accounts Receivable	$                                            200,000	$              600,000
	Accounts Payable	$                                        2,400,000	$          6,000,000
	Billing in progress	$                                        4,000,000	$          8,000,000
Requirement 4
	Year		Revenue	Gross Profit
	2018		$                         -	$                              -
	2019		$                         -	$                              -
	2020		$        10,000,000	$                   600,000
	Total Revenue		$        10,000,000
	Less: Total Cost
	2018	$                                        2,400,000
	2019	$                                        3,800,000
	2020	$                                        3,200,000	$          9,400,000
	Total Gross Profit		$              600,000
Requirement 5
	Year		Revenue	Gross Profit/(loss)
	2018		$                         -	$                              -
	2019		$                         -	$                              -
	2020		$        10,000,000	$                 -100,000
	Total Revenue		$        10,000,000
	Less: Total Cost
	2018	$                                        2,400,000
	2019	$                                        3,800,000
	2020	$                                        3,900,000	$        10,100,000
	Total Gross Profit		$            -100,000