In 2013, the Westgate Construction Company entered into a contract to construct

Question

In 2013, 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 2015. Information related to the contract is as follows: 2013 2014 2015 Cost incurred during the year $ 3,344,000 $ 3,960,000 $ 1,645,600 Estimated costs to complete as of year-end 5,456,000 1,496,000 0 Billings during the year 2,800,000 4,504,000 2,696,000 Cash collections during the year 2,520,000 4,400,000 3,080,000 Westgate uses the percentage-of-completion method of accounting for long-term construction contracts.

Required: 1. Calculate the amount of gross profit (loss) to be recognized in each of the three years. (Do not round intermediate calculations.)

2.1 In the journal below, complete the necessary journal entries for the year 2013 (credit various accounts for construction costs incurred). (If no entry is required for a particular transaction, select "No journal entry required" in the first account field. Do not round intermediate calculations.)

2.2 In the journal below, complete the necessary journal entries for the year 2014 (credit various accounts for construction costs incurred). (If no entry is required for a particular transaction, select "No journal entry required" in the first account field. Do not round intermediate calculations.)

2.3 In the journal below, complete the necessary journal entries for the year 2015 (credit various accounts for construction costs incurred). (If no entry is required for a particular transaction, select "No journal entry required" in the first account field. Do not round intermediate calculations.)

3. Complete the information required below to prepare a partial balance sheet for 2013 and 2014 showing any items related to the contract. (Do not round intermediate calculations.)

4. Calculate the amount of gross profit (loss) to be recognized in each of the three years, assuming the following costs incurred and costs to complete information. (Do not round intermediate calculations.) 2013 2014 2015 Costs incurred during the year $ 2,480,000 $ 3,840,000 $ 3,280,000 Estimated costs to complete as of year-end 5,680,000 3,180,000 0 5.

Calculate the amount of gross profit (loss) to be recognized in each of the three years, assuming the following costs incurred and costs to complete information. (Do not round intermediate calculations.) 2013 2014 2015 Costs incurred during the year $ 2,480,000 $ 3,840,000 $ 4,020,000 Estimated costs to complete as of year-end 5,680,000 4,180,000 0

Explanation / Answer

1. Calculation of Percentage of Degree of Completion

(Amount in $)

Calculation of amount of Gross Profit to be recognised

(Amount in $)

(2) Accounting Entries

(Amounts in $)

Contract Expense A/c Dr.

To Cash A/c

3344000

3344000

3960000

3960000

1645600

1645600

Gross Debtor A/c Dr.

To Contract Revenue A/c

3800000

3800000

4500000

4500000

1700000

1700000

Contractee A/c Dr.

To Gross Debtor A/c

2800000

2800000

4504000

4504000

2696000

2696000

Cash A/c Dr.

To Contractee A/c

2520000

2520000

4400000

4400000

3080000

3080000

Particulars Calculation 2013 2014 2015 Cost Incurred 3344000 3960000 1645600 Estimated Cost 5456000 1496000 - Billing Made 2800000 4504000 2696000 Cash Collection 2520000 4400000 3080000 Total Estimated Cost Cost Incurred up to date + Estimated cost to be incurred 8800000 8800000 8949600 %age of Completion (Cost Incurred upto date/Total Estmated Cost) x 100 38% 83% 100%

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