Question

I need this question answered assuming that Westgate Construction's contract with Santa Clara County does NOT qualify for revenue recongnition over time... In 2016, 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 2018. Information related to the contract is as follows:

2016			2017			2018
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

****IMPORTANT - Complete the requirements assuming that Westgate Construction's contract with Santa Clara County does NOT qualify for revenue recongnition over time.****

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 2016 (credit "Various accounts" for construction costs incurred).

2-b. In the journal below, complete the necessary journal entries for the year 2017 (credit "Various accounts" for construction costs incurred).

2-c. In the journal below, complete the necessary journal entries for the year 2018 (credit "Various accounts" for construction costs incurred).

3. Complete the information required below to prepare a partial balance sheet for 2016 and 2017 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.

Answer 1

·         Note: Question states that Contract DOES NOT QUALIFY for revenue recognition over time. This means that revenue will be recorded when the contract gets completed.

Requirement 1
	2016	2017	2018
Revenue	$0	$0	$10,000,000
Gross Profits (Loss)	$0	$0	$1,800,000

Requirement 2A
Date	Accounts title	Debit	Credit
2016	Construction in Progress	$2,400,000
	Various accounts		$2,400,000
	(construction cost incurred)
2016	Accounts receivables	$2,000,000
	Billing on Construction contracts		$2,000,000
	(amount billed during the year)
2016	Cash	$1,800,000
	Accounts receivables		$1,800,000
	(cash received)
Requirement 2B
Date	Accounts title	Debit	Credit
2017	Construction in Progress	$3,600,000
	Various accounts		$3,600,000
	(construction cost incurred)
2017	Accounts receivables	$4,000,000
	Billing on Construction contracts		$4,000,000
	(amount billed during the year)
2017	Cash	$3,600,000
	Accounts receivables		$3,600,000
	(cash received)
Requirement 2C
Date	Accounts title	Debit	Credit
2018	Construction in Progress	$2,200,000
	Various accounts		$2,200,000
	(construction cost incurred)
2018	Accounts receivables	$4,000,000
	Billing on Construction contracts		$4,000,000
	(amount billed during the year)
2018	Cash	$4,600,000
	Accounts receivables		$4,600,000
	(cash received)
2018	Construction in Progress	$1,800,000
	Cost of construction	$8,200,000
	Revenue from Long Term contract		$10,000,000
	(revenue recognised)

Requirement 3
Balance Sheet [Partial]	2016		2017
Current Assets:
Accounts receivables		$200,000		$600,000
Construction in progress	$2,400,000		$6,000,000
Less: Billings	($2,000,000)		($6,000,000)
Costs and profits in excess of billings		$400,000		$0
Current Liabilities:
Accounts Payable		$0		$0

• Requirement 4 [Data not provided]
  However,
  Gross Profits and Revenue for 2016 and 2017 would be $ 0
  For 2018:
  revenue = $ 10,000,000
  Gross Profit (loss) = $ 10,000,000 – total cost incurred in all 3 years.