In 2018, the Westgate Construction Company entered into a contract to construct
ID: 2396453 • Letter: I
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
Explanation / Answer
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)
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