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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	$	2,204,000		$	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

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. (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.)

Answer 1

Solution:

Computation of Percentage of Completion
Particulars	2018	2019	2020
Contract revenue	$10,000,000.00	$10,000,000.00	$10,000,000.00
Actual Cost Incurred to date	$2,204,000.00	$5,396,000.00	$7,820,400.00
Estimated Cost to Complete as of Year-end	$5,396,000.00	$2,204,000.00	$0.00
Total estimated cost (Actual In 2020)	$7,600,000.00	$7,600,000.00	$7,820,400.00
Percentage of Completion	$29.00	$71.00	$100.00

Now Revenue Recognition in 2018 = Total Contract Revenue * Percentage of Completion in 2018

= $10,000,000 * 29% = $2,900,000

Revenue Recognition in 2019=(Total Contract Revenue*Percentage of Completion in 2019) - Revenue Already recognised in 2018

= $10,000,000 * 71% - $2,900,000 = $4,200,000

Revenue Recognition in 2019 = Total Contract Revenue - Revenue recognised in 2018 and 2019

= $10,000,000 - $2,900,000 - $4,200,000 = $2,900,000

Now, calculation of Gross Profit (Loss) to be recognized:

Total Gross profit on the Project = Contract revenue - Total cost incurred on the project

= $10,000,000 - $7,820,400 = $2,179,600

In 2018 = Revenue recognised in 2018 - Actual Cost incurred in 2018 = $2,900,000 - $2,204,000 = $696,000

In 2019= Revenue recognised in 2019 - Actual Cost incurred in 2019 = $4,200,000 - $3,192,000 = $1,008,000

In 2020 = Total Gross profit on the Project - Gross profit recognized in 2018 - Gross Profir recognized in 2019

= $2,179,600 - $696,000 - $1,008,000 = $475,600