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	$	2,640,000		$	2,300,000		$	2,926,000
Estimated costs to complete as of year-end		6,160,000			2,660,000			0
Billings during the year		2,080,000			2,860,000			5,060,000
Cash collections during the year		1,840,000			2,800,000			5,360,000

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	$	2,640,000		$	3,840,000		$	3,240,000
Estimated costs to complete as of year-end		6,160,000			3,140,000			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	$	2,640,000		$	3,840,000		$	4,020,000
Estimated costs to complete as of year-end		6,160,000			4,180,000			0

Answer 1

I would be able to answer only 4 subquestion out of 5 as per answering guidlelines given to us.

2018			2019			2020
	Amount	% Complete			% Complete			% Complete
Cost incurred during the year	2,640,000.00	30.00%		2,300,000.00	65.00%		2,926,000.00	100.00%
Estimated costs to complete as of year-end	6,160,000.00			2,660,000.00			-
Billings during the year	2,080,000.00			2,860,000.00			5,060,000.00
Cash collections during the year	1,840,000.00			2,800,000.00			5,360,000.00
Cost incurred during the Previous year	-			2,640,000.00			4,940,000.00
Cost incurred till the end of the year	2,640,000.00			4,940,000.00			7,866,000.00
Total cost	8,800,000.00			7,600,000.00			7,866,000.00
Total Revenue	3000000			6500000			10000000
Revenue for the year	3000000			3500000			3500000
Profit (Rev -Cost)	360,000			1,560,000			2,134,000

Year 1
Construction Cost Dr.	2,640,000.00
To Expense Payable		2,640,000.00
(Exp for the year)
Santa Clara County Dr.	2,080,000.00
To Sales A/c		2,080,000.00
(Billing done to Santa Clara)
Unbilled Revenue A/c Dr.	920,000.00
To Sales A/c		920,000.00
(Unbilled = Revenue for the year - Billed to Santa Clara)
Cash A/c Dr.	1,840,000.00
To santa Clara		1,840,000.00
(Amount Received from Santa Clara)
P & L A/c Dr.	360,000
To Reserves A/c		360,000
(Profit for the year transferred to reserves)
Year 2
Construction Cost Dr.	2,300,000.00
To Expense Payable		2,300,000.00
Santa Clara County Dr.	2,860,000.00
To Sales A/c		2,860,000.00
Unbilled Revenue A/c Dr.	640,000.00
To Sales A/c		640,000.00
Cash A/c Dr.	2,800,000.00
To santa Clara		2,800,000.00
P & L A/c Dr.	1,200,000
To Reserves		1,200,000
Year 2
Construction Cost Dr.	2,926,000.00
To Expense Payable		2,926,000.00
Santa Clara County Dr.	5,060,000.00
To Sales A/c		5,060,000.00
Unbilled Revenue A/c Dr.	-
To Sales A/c		-
(No Entry as all amounts hav been Billed)
Cash A/c Dr.	5,360,000.00
To santa Clara		5,360,000.00
P & L A/c Dr.	574,000
To Reserves		574,000