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	$	2,184,000		$	3,510,000		$	2,316,600
Estimated costs to complete as of year-end		5,616,000			2,106,000			0
Billings during the year		2,120,000			3,574,000			4,306,000
Cash collections during the year		1,860,000			3,400,000			4,740,000

Westgate recognizes revenue over time according to percentage of completion.

rev: 09_15_2017_QC_CS-99734

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).

Answer 1

Working notes for calculation of Revenue below:

	2018	2019	2020
Actual cost	2,184,000	3,510,000	2,316,600	8,010,600
Estimated cost	5,616,000	2,106,000	-	7,722,000
Percentage of Completion	28%	74%	100%
Contract To Date Revenue	2,828,283	7,373,737	10,000,000
Yearly Revenue	2,828,283	4,545,455	2,626,263	10,000,000
Billings during the year	2,120,000	3,574,000	4,306,000	10,000,000
Cash collections	1,860,000	3,400,000	4,740,000	10,000,000

Note 1: Percentage of Completion = Cost to date / Total Estimated cost

Note 2: Contract to date Revenue Recognition = Total Estimated Revenue (Billings) * Percentage of Completion

Journal for the above transactions below:

Date	Dr/Cr	Particulars	LF	Debit	Credit
2-a	Dr	Cost incurred A/c		2,184,000
	Cr	To Bank			2,184,000
		(Cost incured for the year)
	Dr	Santa Clara County A/c		2,120,000
	Cr	To Sales			2,120,000
		(Billings for the year)
	Dr	Bank A/c		1,860,000
	Cr	Santa Clara County A/c			1,860,000
		(Cash received)
	Dr	Accrued billings A/c		708,283
	Cr	To Sales			708,283
		(Accrued Revenue on POC method)
2-b	Dr	Sales A/c		708,283
	Dr	To Accrued Billings A/c			708,283
		(Accrual of the previous year reversed)
	Dr	Cost incurred A/c		3,510,000
	Cr	To Bank			3,510,000
		(Cost incured for the year)
	Dr	Santa Clara County A/c		3,574,000
	Cr	To Sales			3,574,000
		(Billings for the year)
	Dr	Bank A/c		3,400,000
	Dr	Santa Clara County A/c			3,400,000
		(Cash received)
	Dr	Accrued billings A/c		1,679,737
	Dr	To Sales			1,679,737
		(Accrued Revenue on POC method)
2-c	Dr	Sales A/c		1,679,737
	Dr	To Accrued Billings A/c			1,679,737
		(Accrual of the previous year reversed)
	Dr	Cost incurred A/c		2,316,600
	Dr	To Bank			2,316,600
		(Cost incured for the year)
	Dr	Santa Clara County A/c		4,306,000
	Dr	To Sales			4,306,000
		(Billings for the year)
	Dr	Bank A/c		4,740,000
	Dr	Santa Clara County A/c			4,740,000
		(Cash received)