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:

Answer 1

revenue recognized

• 2018 = $3,000,000
• 2019 = $4,500,000
• 2020 = $2,500,000

gross profit

• 2018 = $600,000
• 2019 = $900,000
• 2020 = $300,000

Step-by-step explanation:

Percentage of 2018 2019 2020

completion method

Cost incurred in $0 $2,400,000 $6,000,000

previous year

+ Cost incurred $2,400,000 $3,600,000 $2,200,000

during the year

Total cost incurred $2,400,000 $6,000,000 $8,200,000

+ Estimated cost to $5,600,000 $2,000,000 $0

be incurred

Total estimated cost $8,000,000 $8,000,000 $8,200,000

to be incurred

Percentage of 30% 75% 100%

completion

Total revenue $10,000,000 $10,000,000 $10,000,000

Total revenue $3,000,000 $7,500,000 $10,000,000

recognized (% of completion x total revenue)

- Revenue recognized ($0) ($3,000,000) ($7,500,000)

in previous year

= revenue recognized $3,000,000 $4,500,000 $2,500,000

in current year

gain/loss 2018 2019 2020

Revenue $3,000,000 $4,500,000 $2,500,000

- Cost incurred ($2,400,000) ($3,600,000) ($2,200,000)

Gross profit $600,000 $900,000 $300,000