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. Calculate the amount of revenue and gross profit to be recognized in each of the 3 years assuming the following costs to incur and costs to complete information. ( Do not round intermediate calculations and round your final answers to the nearest whole dollar amount.

   2018    2019 2020

Cost incurred during the year $2,016,000 3,890,000    3,290,000

Estimated cost to complete as of year end $5,184,000    3,190,000   

Answer 1

Year 2018:

Up-to-date cost = 2,016,000

Estimated cost = 5,184,000

Total cost = 2,016,000 + 5,184,000 = 7,200,000

Rate of completion = Up-to-date cost / Total cost

                                = 2,016,000 / 7,200,000

                                = 0.28

Amount of revenue = Total contract price × Rate of completion

                                 = 10,000,000 × 0.28

                                 = $2,800,000 (Answer)

Gross profit = Amount of revenue – Cost incurred

                    = 2,800,000 – 2,016,000

                    = $784,000 (Answer)

Year 2019:

Up-to-date cost = 2,016,000 + 3,890,000 = 5,906,000

Estimated cost = 3,190,000

Total cost = 5,906,000 + 3,190,000 = 9,096,000

Rate of completion = Up-to-date cost / Total cost

                                = 5,906,000 / 9,096,000

                                = 0.6492

Amount of revenue = (Total contract price × Rate of completion) – Revenue of 2018

                                 = (10,000,000 × 0.6492) – 2,800,000

                                 = 6,492,000 – 2,800,000

                                 = $3,692,000 (Answer)

Gross profit = Amount of revenue – Cost incurred

                  = 3,692,000 – 3,890,000

                    = - $198,000 (Answer)

Year 2020:

Up-to-date cost = 2,016,000 + 3,890,000 + 3,290,000 = 9,196,000

Estimated cost = 0 (since this is the project completion year)

Total cost = 9,196,000

Rate of completion = Up-to-date cost / Total cost

                                = 9,196,000 / 9,196,000

                                = 1

Amount of revenue = (Total contract price × Rate of completion) – Revenue of 2018

                                 = (10,000,000 × 1) – 2,800,000 – 3,692,000

                                 = 10,000,000 – 6,492,000

                                 = $3,508,000 (Answer)

Gross profit = Amount of revenue – Cost incurred

                    = 3,508,000 – 3,290,000

                    = $218,000 (Answer)