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	$	2,523,000		$	3,177,000		$	1,980,000
Estimated costs to complete as of year-end		6,177,000			1,800,000			0
Billings during the year		2,070,000			3,630,000			4,300,000
Cash collections during the year		1,835,000			3,400,000			4,765,000

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	$	2,523,000		$	3,835,000		$	3,235,000
Estimated costs to complete as of year-end		6,177,000			3,135,000			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	$	2,523,000		$	3,835,000		$	4,005,000
Estimated costs to complete as of year-end		6,177,000			4,170,000			0

Answer 1

Answer 1
Year	2018	2019	2020
Cost incurred during the year	$          2,523,000	$          3,177,000	$          1,980,000
Cumulative cost incurred at end of year	$          2,523,000	$          5,700,000	$          7,680,000
Cumulative cost incurred at end of year	$          2,523,000	$          5,700,000	$          7,680,000
Add: Estimated costs to complete as of year-end	$          6,177,000	$          1,800,000	$                           0
Total estimated cost	$          8,700,000	$          7,500,000	$          7,680,000
Percentage of completion (cumulative cost incurred at end of year / Total estimated cost)	29.00%	76.00%	100.00%
Revenue recognized till the date (10000000 * percentage of completion)	$          2,900,000	$          7,600,000	$        10,000,000
Less: Revenue recognized up to earlier year	$                           0	$          2,900,000	$          7,600,000
Revenue recognized in current year	$          2,900,000	$          4,700,000	$          2,400,000
Revenue recognized in current year	$          2,900,000	$          4,700,000	$          2,400,000
Less: cost incurred during the year	$          2,523,000	$          3,177,000	$          1,980,000
Gross Profit (Loss)	$              377,000	$          1,523,000	$              420,000

Date	General Journal	Debit	Credit
2018	Construction in progress	2,523,000
	Various Accounts		2,523,000
	(To record cost incurred in Progress.)
2018	Accounts receivable	2,070,000
	Billings on construction contract		2,070,000
	(To record Billings to Customer.)
2018	Cash	1,835,000
	Accounts receivable		1,835,000
	(To record cash collected from customer.)
2018	Construction in progress	377,000
	Cost of construction	2,523,000
	Construction Revenue		2,900,000
	(To record recognize Revenue.)
2019	Construction in progress	3,177,000
	Various Accounts		3,177,000
	(To record cost incurred in Progress.)
2019	Accounts receivable	3,630,000
	Billings on construction contract		3,630,000
	(To record Billings to Customer.)
2019	Cash	3,400,000
	Accounts receivable		3,400,000
	(To record cash collected from customer.)
2019	Construction in progress	1,523,000
	Cost of construction	3,177,000
	Construction Revenue		4,700,000
	(To record recognize Revenue.)
2020	Construction in progress	1,980,000
	Various Accounts		1,980,000
	(To record cost incurred in Progress.)
2020	Accounts receivable	4,300,000
	Billings on construction contract		4,300,000
	(To record Billings to Customer.)
2020	Cash	4,765,000
	Accounts receivable		4,765,000
	(To record cash collected from customer.)
2020	Construction in progress	420,000
	Cost of construction	1,980,000
	Construction Revenue		2,400,000
	(To record recognize Revenue.)
2020	Billings on construction contract	10,000,000
	Construction in progress		10,000,000
	(To record completion of contract.)

Calculation	2018		2019
Beginning Account receivable			235,000
Billings	2,070,000		3,630,000
Less: Collections	1,835,000		3,400,000
Account receivable	235,000		465,000

Partial Balance sheet	2018		2019
Current assets
Account receivable		235,000		465,000
Construction in progress	$ 2,900,000		$   7,600,000
Less: Billings	2,070,000		5,700,000
Cost in excess of Billings		830,000		1,900,000

Answer 4
Year	2018	2019	2020
Cost incurred during the year	$          2,523,000	$          3,835,000	$          3,235,000
Cumulative cost incurred at end of year	$          2,523,000	$          6,358,000	$          9,593,000
Cumulative cost incurred at end of year	$          2,523,000	$          6,358,000	$          9,593,000
Add: Estimated costs to complete as of year-end	$          6,177,000	$          3,135,000	$                           0
Total estimated cost	$          8,700,000	$          9,493,000	$          9,593,000
Percentage of completion (cumulative cost incurred at end of year / Total estimated cost)	29.00%	66.97567%	100.00%
Revenue recognized till the date (10000000 * percentage of completion)	$          2,900,000	$          6,697,567	$        10,000,000
Less: Revenue recognized up to earlier year	$                           0	$          2,900,000	$          6,697,567
Revenue recognized in current year	$          2,900,000	$          3,797,567	$          3,302,433
Revenue recognized in current year	$          2,900,000	$          3,797,567	$          3,302,433
Less: cost incurred during the year	$          2,523,000	$          3,835,000	$          3,235,000
Gross Profit (Loss)	$              377,000	$              (37,433)	$                67,433
Your Answer
Year	2018	2019	2020
Revenue	$          2,900,000	$          3,797,567	$          3,302,433
Gross Profit (Loss)	$              377,000	$              (37,433)	$                67,433

Answer 5
Year	2018	2019	2020
Cost incurred during the year	$          2,523,000	$          3,835,000	$          4,005,000
Cumulative cost incurred at end of year	$          2,523,000	$          6,358,000	$        10,363,000
Cumulative cost incurred at end of year	$          2,523,000	$          6,358,000	$        10,363,000
Add: Estimated costs to complete as of year-end	$          6,177,000	$          4,170,000	$                           0
Total estimated cost	$          8,700,000	$        10,528,000	$        10,363,000
Percentage of completion (cumulative cost incurred at end of year / Total estimated cost)	29.00%	60.39134%	100.00%
Revenue recognized till the date (10000000 * percentage of completion)	$          2,900,000	$          6,039,134	$        10,000,000
Less: Revenue recognized up to earlier year	$                           0	$          2,900,000	$          6,039,134
Revenue recognized in current year	$          2,900,000	$          3,139,134	$          3,960,866
Revenue recognized in current year	$          2,900,000	$          3,139,134	$          3,960,866
Less: cost incurred during the year	$          2,523,000	$          3,835,000	$          4,005,000
Less: Provision For Loss of Project		$              528,000
Add: Loss settled from Provision			$              528,000
Gross Profit (Loss)	$              377,000	$        (1,223,866)	$              483,866
Your Answer
Year	2018	2019	2020
Revenue	$          2,900,000	$          3,139,134	$          3,960,866
Gross Profit (Loss)	$              377,000	$        (1,223,866)	$              483,866

Provision For Loss of Project, When Estimated Project cost is more than Contract Price then Difference between them Provision should be made. And for future Amount of provision should be used for write of loss. For 2019, Provision = estimated cost less Contract revenue = 10,528,000 - 10,000,000 = 528,000