In: Accounting
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 $ 2,580,000 $ 4,042,000 $ 2,175,800 Estimated costs to complete as of year-end 6,020,000 1,978,000 0 Billings during the year 2,060,000 4,562,000 3,378,000 Cash collections during the year 1,830,000 4,200,000 3,970,000 Westgate recognizes revenue over time according to percentage of completion. rev: 09_15_2017_QC_CS-99734 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.
Calculation of the amount of revenue and gross profit (loss) to be recognized in each of the three years:
2018
Cost incurred to date $ 2,580,000
+ Estimated costs to complete as of year-end 6,020,000
= Estimated total costs $8,600,000
% of completion = $ 2,580,000/ $8,600,000 = 30%
Revenue to be recognized = $10m x 30% =
$3,000,000
- Cost incurred $ 2,580,000
= Gross profit $420,000
2019
Cost incurred to date $6,622,000
+ Estimated costs to complete as of year-end 1,978,000
= Estimated total costs $8,600,000
% of completion = $6,622,000 / $8,600,000 = 77%
Revenue to be recognized to date = $10m x 77% =
$7,700,000, but you already recognized $3m in 2018, so that leaves
$4,700,000 to be recognized in 2019
Revenue to be recognized in 2019 $4,700,000
- Cost incurred in 2019 $ 4,042,000
= Gross profit $658,000
2020
Cost incurred to date $8,797,800
+ Estimated costs to complete as of year-end 0
= Estimated total costs $8,797,800
% of completion = 100%
Revenue to be recognized to date = $10m x 100% =
$10,000,000, but you already recognized $3m in 2018, and $4,700,000
in 2019, so that leaves $2,300,000 to be
recognized in 2020
Revenue to be recognized in 2020 $2,300,000
- Cost incurred in 2020 $ 2,175,800
= Gross profit $124,200