Question

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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	$	2,072,000		$	2,738,000		$	2,849,000
Estimated costs to complete as of year-end		5,328,000			2,590,000			0
Billings during the year		2,160,000			2,650,000			5,190,000
Cash collections during the year		1,880,000			2,700,000			5,420,000

Westgate recognizes revenue over time according to percentage of completion.

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)

Answer 1

Solution

	2018	2019	2020
Revenue	$             2,800,000	$        3,700,000	$            3,500,000
Gross profit	$                728,000	$           962,000	$                651,000

Working

Working		2018	2019	2020
A	Contract Price	$ 10,000,000	$ 10,000,000	$ 10,000,000
B	Cost Incurred to Date	$ 2,072,000	$ 4,810,000	$ 7,659,000
C	Estimated cost yet to be incurred to complete the contract	$ 5,328,000	$ 2,590,000	$ 0
D = B+C	Total Cost	$ 7,400,000	$ 7,400,000	$ 7,659,000
E = (D/B) x 100	% of Completion	28%	65%	100%
F = A x E	Revenue to date	$ 2,800,000	$ 6,500,000	$ 10,000,000
G	Revenue of Previous year	$ 0	$ 2,800,000	$ 6,500,000
H = F - G	Net Revenue this year	$ 2,800,000	$ 3,700,000	$ 3,500,000
I	Cost to date	$ 2,072,000	$ 4,810,000	$ 7,659,000
J	Cost to date of previous year	$ 0	$ 2,072,000	$ 4,810,000
K = I - J	Net Cost for the year	$ 2,072,000	$ 2,738,000	$ 2,849,000
L = H - K	Gross Profits	$ 728,000	$ 962,000	$ 651,000