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 $ 2,604,000 $ 4,032,000 $ 1,940,400 Estimated costs to complete as of year-end 5,796,000 1,764,000 0 Billings during the year 2,040,000 4,596,000 3,364,000 Cash collections during the year 1,820,000 4,000,000 4,180,000 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 $ 2,604,000 $ 3,820,000 $ 3,220,000 Estimated costs to complete as of year-end 5,796,000 3,120,000 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 $ 2,604,000 $ 3,820,000 $ 3,960,000 Estimated costs to complete as of year-end 5,796,000 4,140,000 0

Answer 1

1		2018	2019	2020
	CONTRACT PRICE	$                                                              10,000,000	$   10,000,000	$                10,000,000
	ACTUAL COSTS TO DATE*	$                                                                 2,604,000	$      6,636,000	$                  8,576,400
	ESTIMATED COST TO COMPLETE	$                                                                 5,796,000	$      1,764,000	$                                  -
	TOTAL ESTIMATED COSTS	$                                                                 8,400,000	$      8,400,000	$                  8,576,400
	ESTIMATED GROSS PROFIT(LOSS) RECOGNISITION	$                                                                 1,600,000	$      1,600,000	$                  1,423,600
	(ACTUAL IN 2020)
NOTE	ACTUAL COSTS TO DATE*
	2018	$2,604,000
	2019	$2604000+$4032000
	2020	$6636000+$1940400
	REVENUE RECOGNISITION
	ACTUAL COSTS TO DATE / TOTAL ESTIMATED COSTS
	*CONTRACT PRICE
	2018	2,604,000/8,400,000*10,000,000=		$                  3,100,000
	2019	6,636,000/8400000*10,000,000-$3,100,000=		$                  4,800,000
	2020	$10,000,000-$3,100,000-$4,800,000=		$                  2,100,000
	GROSS PROFIT(LOSS) RECOGNISITION
	REVENUE-ACTUAL COST
	2018	$3,100,000-$2,604,000=		$                      496,000
	2019	$4,800,000-$4,032,000=		$                      768,000
	2020	TOTAL GROSS PROFIT RECOGNIZED ON PROJECT		$                  1,423,600
		LESS :GROSS PROFIT RECOGNIZED IN 2019		$                      768,000
		LESS :GROSS PROFIT RECOGNIZED IN 2018		$                      496,000
		GROSS PROFIT 2020		$                      159,600
2a.
DATE	GENERAL JOURNAL	DEBIT	CREDIT
2018	CONSTRUCTION IN PROGRESS…DR	$                                                                 2,604,000
	TO VARIOUS ACCOUNTS		$      2,604,000
2018	ACCOUNTS RECEIVABLE…DR	$                                                                 2,040,000
	TO BILLINGS ON CONTRUCTION CONTRACT		$      2,040,000
2018	CASH…DR	$                                                                 1,820,000
	TO ACCOUNTS RECEIVABLE		$      1,820,000
2018	CONSTRUCTION IN PROGRESS…DR	$                                                                    496,000
	COST OF CONSTRUCTION	$                                                                 2,604,000
	TO REVENUE FROM LONG TERM CONTRACT		$      3,100,000
2b.
DATE	GENERAL JOURNAL	DEBIT	CREDIT
2019	CONSTRUCTION IN PROGRESS…DR	$                                                                 4,032,000
	TO VARIOUS ACCOUNTS		$      4,032,000
2019	ACCOUNTS RECEIVABLE…DR	$                                                                 4,596,000
	TO BILLINGS ON CONTRUCTION CONTRACT		$      4,596,000
2019	CASH…DR	$                                                                 4,000,000
	TO ACCOUNTS RECEIVABLE		$      4,000,000
2019	CONSTRUCTION IN PROGRESS…DR	$                                                                    768,000
	COST OF CONSTRUCTION	$                                                                 4,032,000
	TO REVENUE FROM LONG TERM CONTRACT		$      4,800,000
2c.
DATE	GENERAL JOURNAL	DEBIT	CREDIT
2020	CONSTRUCTION IN PROGRESS…DR	$                                                                 1,940,400
	TO VARIOUS ACCOUNTS		$      1,940,400
2020	ACCOUNTS RECEIVABLE…DR	$                                                                 3,364,000
	TO BILLINGS ON CONTRUCTION CONTRACT		$      3,364,000
2020	CASH…DR	$                                                                 4,180,000
	TO ACCOUNTS RECEIVABLE		$      4,180,000
2020	CONSTRUCTION IN PROGRESS…DR	$                                                                    159,600
	COST OF CONSTRUCTION	$                                                                 1,940,400
	TO REVENUE FROM LONG TERM CONTRACT		$      2,100,000
3	BALANCE SHEET		2018		2019
	CURRENT ASSETS:
	ACCOUNT RECEIVABLE		$         220,000		$            816,000
	CONSTRUCTION IN PROGRESS	$                                                                 3,100,000		$                  7,900,000
	LESS:BILLINGS	(2,040,000)		(6,636,000)
	COSTS IN EXCESS OF BILLINGS		1,060,000		1,264,000
4		2018	2019	2020
	CONTRACT PRICE	$                                                              10,000,000	$   10,000,000	$                10,000,000
	ACTUAL COSTS TO DATE*	$                                                                 2,604,000	$      6,424,000	$                  9,644,000
	ESTIMATED COST TO COMPLETE	$                                                                 5,796,000	$      3,120,000	$                                  -
	TOTAL ESTIMATED COSTS	$                                                                 8,400,000	$      9,544,000	$                  9,644,000
	ESTIMATED GROSS PROFIT(LOSS) RECOGNISITION	$                                                                 1,600,000	$         456,000	$                      356,000
	(ACTUAL IN 2020)
NOTE	ACTUAL COSTS TO DATE*
	2018	$2,604,000
	2019	$2604000+$3820000
	2020	$6424000+$3220000
	REVENUE RECOGNISITION
	ACTUAL COSTS TO DATE / TOTAL ESTIMATED COSTS
	*CONTRACT PRICE
	2018	2,604,000/8,400,000*10,000,000=		$                  3,100,000
	2019	6,424,000/9544000*10,000,000-$3,100,000=		$            3,630,930.43	$        3,630,930
	2020	$10,000,000-$3,100,000-$3,630,930=		$                  3,269,070
	GROSS PROFIT(LOSS) RECOGNISITION
	REVENUE-ACTUAL COST
	2018	$3,100,000-$2,604,000=		$                      496,000
	2019	$3,630,930-$3,820,000=		$                    (189,070)
	2020	TOTAL GROSS PROFIT RECOGNIZED ON PROJECT		$                      356,000
		LESS :GROSS PROFIT RECOGNIZED IN 2019		$                    (189,070)
		LESS :GROSS PROFIT RECOGNIZED IN 2018		$                      496,000
		GROSS PROFIT 2020		$                        49,070
5		2018	2019	2020
	CONTRACT PRICE	$                                                              10,000,000	$   10,000,000	$                10,000,000
	ACTUAL COSTS TO DATE*	$                                                                 2,604,000	$      6,424,000	$                10,384,000
	ESTIMATED COST TO COMPLETE	$                                                                 5,796,000	$      4,140,000	$                                  -
	TOTAL ESTIMATED COSTS	$                                                                 8,400,000	$   10,564,000	$                10,384,000
	ESTIMATED GROSS PROFIT(LOSS) RECOGNISITION	$                                                                 1,600,000	$       (564,000)	$                    (384,000)
	(ACTUAL IN 2020)
NOTE	ACTUAL COSTS TO DATE*
	2018	$2,604,000
	2019	$2604000+$3820000
	2020	$6424000+$3960000
	REVENUE RECOGNISITION
	ACTUAL COSTS TO DATE / TOTAL ESTIMATED COSTS
	*CONTRACT PRICE
	2018	2,604,000/8,400,000*10,000,000=		$                  3,100,000
	2019	6,424,000/10564000*10,000,000-$3,100,000=		$            2,981,029.91	$        2,981,030
	2020	$10,000,000-$3,100,000-$2,981,030=		$                  3,918,970
	GROSS PROFIT(LOSS) RECOGNISITION
	REVENUE-ACTUAL COST
	2018	$3,100,000-$2,604,000=		$                      496,000
	2019	$2,981,030-$3,820,000=		$                    (838,970)
	2020	TOTAL GROSS PROFIT RECOGNIZED ON PROJECT		$                    (384,000)
		LESS :GROSS PROFIT RECOGNIZED IN 2019		$                    (838,970)
		LESS :GROSS PROFIT RECOGNIZED IN 2018		$                      496,000
		GROSS PROFIT 2020		$                      (41,030)