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 $ 2,184,000 $ 3,510,000 $ 2,316,600 Estimated costs to complete as of year-end 5,616,000 2,106,000 0 Billings during the year 1,800,000 3,894,000 4,306,000 Cash collections during the year 1,600,000 3,400,000 5,000,000 Westgate Construction uses the completed contract method of accounting for long-term construction contracts. Required: 1. Calculate the amount of revenue and gross profit (loss) to be recognized in each of the three years.

Answer 1

revenue recognized

2018 = $2,800,000

2019 = $4,500,000

2020 = $2,700,000

gross profit

2018 = $616,000

2019 = $990,000

2020 = $383,400

Explanation:

Percentage of 2018 2019 2020

completion method

Cost incurred in $0 $2,184,000 $5,694,000

previous year

+ Cost incurred $2,184,000 $3,510,000 $2,316,600

during the year

Total cost incurred $2,184,000 $5,694,000 $8,010,600

+ Estimated cost to $5,616,000 $2,106,000 $0

be incurred

Total estimated cost $7,800,000 $7,800,000 $8,010,600

to be incurred

Percentage of 28% 73% 100%

completion

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

Total revenue $2,800,000 $7,300,000 $10,000,000

recognized (% of completion x total revenue)

- Revenue recognized ($0) ($2,800,000) ($7,200,000)

in previous year

= revenue recognized $2,800,000 $4,500,000 $2,700,000

in current year

gain/loss 2018 2019 2020

Revenue $2,800,000 $4,500,000 $2,700,000

- Cost incurred ($2,184,000) ($3,510,000) ($2,316,600)

Gross profit $616,000 $990,000 $383,400