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	2,400,000	3,600,000	2,200,000
Estimated costs to complete as of year-end	5,600,000	2,000,000	0
Billings during the year	2,000,000	4,000,000	4,000,000
Cash collections during the year	1,800,000	3,600,000	4,600,000

2-a. In the journal below, complete the necessary journal entries (construction costs, progress billings, cash collections, gross profit/loss) for the year 2018 (credit "Various accounts" for construction costs incurred). 2-b. In the journal below, complete the necessary journal entries (construction costs, progress billings, cash collections, gross profit/loss) for the year 2019 (credit "Various accounts" for construction costs incurred). 2-c. In the journal below, complete the necessary journal entries (construction costs, progress billings, cash collections, gross profit/loss) for the year 2020 (credit "Various accounts" for construction costs incurred).

Answer 1

	2018	2019	2020
Contract price	$        10,000,000	$        10,000,000	$        10,000,000
Actual costs to date	$           2,400,000	$           6,000,000	$           8,200,000
Estimated costs	$           5,600,000	$           2,000,000
total estimated costs	$           8,000,000	$           8,000,000	$           8,200,000
Estimated gross profit (loss)	$           2,000,000	$           2,000,000	$           1,800,000
revenue recognition
2018:(24000000/8000000)=	30%
30%*10000000=	$           3,000,000
2019:(6000000/8000000)=	75%
(75%*10000000)-3000000=	$           4,500,000
2020:10000000-3,000,000-4500000=	$           2,500,000
Gross profit (loss) recognition:
2018:3000000-2400000=	$              600,000
2019:4500000-3600000=	$              900,000
2020:2500000-2200000=	$              300,000
Journal entries
	2018		2019		2020
	Debit	Credit	Debit	Credit	Debit	Credit
Construction in progress	$           2,400,000		$           3,600,000		$        2,200,000
Various accounts		$           2,400,000		$        3,600,000		$        2,200,000
Accounts receivable	$           2,000,000		$           4,000,000		$        4,000,000
Billings on construction contract		$           2,000,000		$        4,000,000		$        4,000,000
Cash	$           1,800,000		$           3,600,000		$        4,600,000
Accounts receivable		$           1,800,000		$        3,600,000		$        4,600,000
Construction In progress	$              600,000		$              900,000		$            300,000
Cost of construction	$           2,400,000		$           3,600,000		$        2,200,000
Revenue from long term contracts		$           3,000,000		$        4,500,000		$        2,500,000