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	$	2,100,000		$	2,450,000		$	2,695,000
Estimated costs to complete as of year-end		4,900,000			2,450,000			0
Billings during the year		2,200,000			2,350,000			5,450,000
Cash collections during the year		1,900,000			2,300,000			5,800,000

Westgate recognizes revenue over time according to the 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
The cost incurred during the year	$	2,100,000		$	3,900,000		$	3,300,000
Estimated costs to complete as of year-end		4,900,000			3,200,000			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	$	2,100,000		$	3,900,000		$	4,200,000
Estimated costs to complete as of year-end		4,900,000			4,300,000			0

Answer 1

(All Amounts are in $ 000's)

1. Calculate the amount of revenue and gross profit (loss) to be recognized in each of the three years

Actual Cost to Date	Actual Cost	Estimated Cost	Total Estimated Cost
2018	2100	4900	7000
2019	4550 (2100+2450)	2450	7000
2020	7245 (4550+2695)	0	7245

Percentage of Completion

2018 (2100/7000) * 100 = 30 %

2019 (4550/7000) * 100 = 65 %

2020 ( 7245/7245) * 100 = 100%

	Revenue Recognition	Less Actual cost	Gross Profit
2018	3000 (10000 * 30%)	2100	900
2019	3500 (10000 * 65 %) - 3000	2450	1050
2020	3500 (10000-6500)	2695	805

Q2-a

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

1. To Record Cost of Construction

Construction In Progress A/c Dr. 2100

To Various Accounts 2100

(Being cost of construction is recorded for 2018)

2. To Record Progress Billings

Account Receivable A/c Dr. 2200

To Billing on Construction Contract 2200

3. To Record Collection of Cash

Cash A/c Dr. 1900

To Accounts Receivable 1900

4. To Record Gross Profits

Construction in Progress (Gross Profit) A/c Dr. 900

Cost of Construction A/c Dr. 2100

To Revenue from Long Term Contract A/c 3000

2-b

1. To Record Cost of Construction

Construction In Progress A/c Dr. 2450

To Various Accounts 2450

(Being cost of construction is recorded for 2019)

2. To Record Progress Billings

Account Receivable A/c Dr. 2350

To Billing on Construction Contract 2350

3. To Record Collection of Cash

Cash A/c Dr. 2300

To Accounts Receivable 2300

4. To Record Gross Profits

Construction in Progress (Gross Profit) A/c Dr. 1050

Cost of Construction A/c Dr. 2450

To Revenue from Long Term Contract A/c 3500

2-c

1. To Record Cost of Construction

Construction In Progress A/c Dr. 2695

To Various Accounts 2695

(Being cost of construction is recorded for 2019)

2. To Record Progress Billings

Account Receivable A/c Dr. 5450

To Billing on Construction Contract 5450

3. To Record Collection of Cash

Cash A/c Dr. 5800

To Accounts Receivable 5800

4. To Record Gross Profits

Construction in Progress (Gross Profit) A/c Dr. 805

Cost of Construction A/c Dr. 2695

To Revenue from Long Term Contract A/c 3500

3.Complete the information required below to prepare a partial balance sheet for 2018 and 2019 showing any items related to the contract.

Balance Sheet (Partial)	2018 (Amt)	2018 (Amt)	2019 (Amt)	2019 (Amt)
Current Assets
Account Receivable		300		350
Construction in Progress	2100		4550
Less :Billings	(2200)	(100)	(4550)	0

Explanation:

Accounts Receivalbe (2018): 2200 - 1900 = 300

Accounts Receivalbe (2019):  2200 - 1900 + 2350 - 2300 = 350

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.

Actual Cost to Date	Actual Cost	Estimated Cost	Total Estimated Cost
2018	2100	4900	7000
2019	6000 (2100+3900)	3200	9200
2020	9300 (6000+3300)	0	9300

Percentage of Completion

2018 (2100/7000) * 100 = 30 %

2019 (6000/9200) * 100 = 65.22 %

2020 ( 9300/9300) * 100 = 100%

	Revenue Recognition	Less Actual cost	Gross Profit
2018	3000 (10000 * 30%)	2100	900
2019	3522 (10000 * 65.22 %) - 3000	3900	(378)
2020	3478 (10000-6522)	3300	178

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.

Actual Cost to Date	Actual Cost	Estimated Cost	Total Estimated Cost
2018	2100	4900	7000
2019	6000(2100+3900)	4300	10300
2020	10200 (6000+4200)	0	10200

Percentage of Completion

2018 (2100/7000) * 100 = 30 %

2019 (6000/10300) * 100 = 58.25%

2020 ( 10200/10200) * 100 = 100%

	Revenue Recognition	Less Actual cost	Gross Profit
2018	3000 (10000 * 30%)	2100	900
2019	2825 (10000 * 58.25 %) - 3000	3900	(1075)
2020	4175 (10000-5825)	4200	(25)