Question

In: Accounting

Required information [The following information applies to the questions displayed below.]    In 2018, the Westgate...

Required information

[The following information applies to the questions displayed below.]
  

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 $ 2,204,000 $ 3,192,000 $ 2,424,400
Estimated costs to complete as of year-end 5,396,000 2,204,000 0
Billings during the year 2,140,000 3,256,000 4,604,000
Cash collections during the year 1,870,000 3,200,000 4,930,000


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. (Do not round intermediate calculations and round your final answers to the nearest whole dollar amount. Loss amounts should be indicated with a minus sign.)

Solutions

Expert Solution

2018:

Cost incurred = Cost incurred to date + Estimate cost to complete in current year = 2,204,000+5,396,000 = 7,600,000

% of completion = (2,204,000/7,600,000) X 100 = 29%

Revenue to be recognised = 10,000,000 X 29% = 2,900,000

Gross profit = 2,900,000 - 2,204,000 = 696,000

2019:

Cost incurred = Cost incurred to date + Estimate cost to complete in current year =

(2,204,000+3,192,000) + 2,204,000 = 7,600,000

% of completion = (5,396,000/ 7,600,000) X 100 = 71%

Revenue to be recognised = (10,000,000 X 71%) - 2,900,000 (reveue already recognised in 2018) = 4,200,000

Gross Profit = 4,200,000 - 3,192,000 = 1,008,000

2020:

Cost incurred = Cost incurred to date + Estimate cost to complete in current year = 7,820,400

% of completion = 100%

Revenue to be recognised = (10,000,000 X 100%) - 7,100,000 (reveue already recognised in 2018 & 2019) = 2,900,000

Gross Profit = 2,900,000 - 2,424,400 = 475,600


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