Question

n 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:
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	$	2,044,000		$	3,885,000		$	3,285,000
Estimated costs to complete as of year-end		5,256,000			3,185,000			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	$	2,044,000		$	3,885,000		$	4,155,000
Estimated costs to complete as of year-end

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)

In the journal below, complete the necessary journal entries for the year 2018 (credit "Various accounts" for construction costs incurred). (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

1. Record construction costs. / 2. Record progress billings. / 3. Record cash collections. / 4. Record gross profit (loss)

In the journal below, complete the necessary journal entries for the year 2019 (credit "Various accounts" for construction costs incurred). (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

2018: 1. Record construction costs.​ / 2. Record progress billings. / 3. Record cash collections. / 4. Record gross profit (loss).

In the journal below, complete the necessary journal entries for the year 2020 (credit "Various accounts" for construction costs incurred). (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

1. Record construction costs.​ / 2. Record progress billings. / 3. Record cash collections. / 4. Record gross profit (loss).

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.)

Balance Sheet (Partial) 2018 2019 2014 Current assets: 0 0 Current liabilities: 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. (Do not round intermediate calculations and round your final answers to the nearest whole dollar amount. Loss amounts should be indicated with a minus sign.) 2018 2019 2020 Revenue Gross profit (loss) 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. (Do not round intermediate calculations and round your final answers to the nearest whole dollar amount. Loss amounts should be indicated with a minus sign.) 2018 2019 2020 Revenue Gross profit (loss)

Answer 1

Answer-

There are two methods of computation of contract revenue, expenses, loss/profit and the value of work in progress. One is complete contract method and another is the percentage of completion method.   

Complete contract method as the name suggests calculates revenue,expesnses, loss/profit and work in progress once the contract is complete. Complete contract method is used where there is no assurance of receiving of contract revenue due to any factor like terms in contracts.

The percentage of completion contract calculates on the basis of work complete every year. and percentage of contract method is used where there is certainty of receiving contract revenue others scenarios.   
  
Methodology to calculate
Percentage of Completion Contract Method-   
Formulas

Project Completion % = Accumulated Cost At The End/Estimated Total Cost*100
Recognized Revenue=Total Revenue*Project completion %
Gross Profit=Recognized Revenue-Cost incurred during the year   
  
Apart from it all work in progress will be considered as an asset which will be expanse out in the year of completion of contract and billing shall be considered in liabilities.
or it can be termed as "Net Advance Billing "if billing is more than construction in progress (Liability side) or "Net Construction in Progress " if construction in the progress is more than billing (Asset side) on the balance sheet.   

Construction in progress is also considered as work in progress.

1

	% of Completion Method
	Westgate Construction Company
S.No.	Detail	2018	2019	2020	2021
1	Cost incurred during the year	2,044,000	2,628,000	2,890,800
2	Accumulated Cost At The End	2,044,000	4,672,000	7,562,800
3	Estimated costs to complete as of year-end	5,256,000	2,628,000	-
4	Estimated Total Cost (2+3)	7,300,000	7,300,000	7,562,800
5	Completion %(2/4)	28%	64%	100%
6	Recognized Revenue till date
	10000000*Completion%	2,800,000	6,400,000	10,000,000
7	Recognized Revenue in year	2,800,000	3,600,000	3,600,000
8	Billings during the year	2,170,000	2,502,000	5,328,000
9	Cash collections during the year	1,885,000	2,600,000	5,515,000
10	Gross Profit(7-1)	$           756,000	$           972,000	$           709,200

2.a,b,c

		2018		2019		2020
S.No.	Detail	Dr.($)	Cr.($)	Dr.($)	Cr.($)	Dr.($)	Cr.($)
1	To Record Cost of Construction
	Construction in Process	2,044,000		2,628,000		2,890,800
	Various accounts		2,044,000		2,628,000		2,890,800
2	To Record Progress Billings
	Accounts Receivables	2,170,000		2,502,000		5,328,000
	Billings on Construction in Process		2,170,000		2,502,000		5,328,000
3	To Record Collections
	Cash	1,885,000		2,600,000		5,515,000
	Accounts Receivables		1,885,000		2,600,000		5,515,000
4	To Recognized Revenue (Gross Profit)
	Construction in Process (Gross Profit)	756,000		972,000		709,200
	Construction Expense	2,044,000		2,628,000		2,890,800
	Contract Revenue		2,800,000		3,600,000		3,600,000
5	To Record Completion of the Contract
	Billings on Construction in Process					10,000,000
	Construction in Process						10,000,000