Question

In: Accounting

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

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

Required:

1. Calculate the amount of revenue and gross profit (loss) to be recognized in each of the three years. (Do not round intermediate calculations. Loss amounts should be indicated with a minus sign.)

Solutions

Expert Solution

1) Year 2018

Cost incurred during the year = $2,204,000

Total Estimated cost to complete the contract = $5,396,000+$2,204,000

= $7,600,000

Percentage of completion in 2018 = Cost incurred in 2018/Total Estimated Cost

= $2,204,000/$7,600,000 = 0.29 or 29%

Revenue to be recognized in 2018 = Contract Price*Percentage of Completion

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

Gross Profit for 2018 = Revenue recognized - Cost incurred

= $2,900,000 - $2,204,000 = $696,000

Year 2019

Cost incurred upto 2019 = Cost incurred in 2018+Cost incurred in 2019

= $2,204,000+$3,192,000 = $5,396,000

Total Estimated cost for contract = $5,396,000+$2,204,000 = $7,600,000

Percentage of completion upto 2019 = Cost incurred upto 2019/Total Estimated Cost

= $5,396,000/$7,600,000 = 0.71 or 71%

Revenue to be recognized upto 2019 = Contract Price*Percentage of Completion

= $10,000,000*71% = $7,100,000

Revenue to be recognized in 2019 = Revenue upto 2019 - Revenue recognized in 2018

= $7,100,000 - $2,900,000 = $4,200,000

Gross Profit for 2019 = Revenue recognized for 2019 - Cost incurred in 2019

= $4,200,000 - $3,192,000 = $1,008,000

Year 2020

Cost incurred upto 2020 = Cost incurred in 2018+Cost incurred in 2019+Cost incurred in 2020

= $2,204,000+$3,192,000+$2,424,400 = $7,820,400

Total Cost for contract = $7,820,400

Percentage of completion upto 2020 = Cost incurred upto 2020/Total Cost

= $7,820,400/$7,820,400 = 1.00 or 100%

Revenue to be recognized upto 2020 = Contract Price*Percentage of Completion

= $10,000,000*100% = $10,000,000

Revenue to be recognized in 2020 = Revenue upto 2020 - Revenue recognized upto 2019

= $10,000,000 - $7,100,000 = $2,900,000

Gross Profit for 2020 = Revenue recognized for 20120- Cost incurred in 2020

= $2,900,000 - $2,424,400 = $475,600

Particulars 2018 2019 2020
Revenue to be Recognized 2,900,000 4,200,000 2,900,000
Gross Profit to be recognized 696,000 1,008,000 475,600

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