In part 5, when doing the gross profit loss recognition it should be: 2018= 3,00

Question

In part 5, when doing the gross profit loss recognition it should be:

2018= 3,000,000-2,400,000=$600,000
2019=(300,000)-600,000=(900,000)
2020= (100,000)-(300,000)=200,000

My question is, in 2019 and 2020, why do we use those values (the negative 300,000 and 600,000, negative 100,000 and negative 300,000) ?

P5-10 Long-term contract; revenue recognition over time 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: 2020 2018 $2,400,000 5,600,000 2,000,000 1,800,000 3,600,000 2019 3,600,000 2,000,000 4,000,000 3,600,000 $2,200,000 Cost incurred during the year Estimated costs to complete as of year-end Billings during the year Cash collections during the year 4,000,000 4,600,000 Westgate recognizes revenue over time according to percentage of completion. Required: Calculate the amount of revenue and gross profit to be recognized in each of the three years. Prepare all necessary journal entries for each of the years (credit "various accounts" for construction costs incurred) Prepare a partial balance sheet for 2018 and 2019 showing any items related to the contract. Indicate whether any of the amounts shown are contract assets or contract liabilities. Calculate the amount of revenue and gross profit to be recognized in each of the three years assuming the following costs incurred and costs to complete information: 1. 2. 3. 4. 2018 2,400,000 5,600,000 2019 3,800,000 3,100,000 2020 Costs incurred during the year Estimated costs to complete as of year-end 3,200,000 5. Calculate the amount of revenue and gross profit to be recognized in each of the three years assuming the following costs incurred and costs to complete information 2018 $2,400,000 5,600,000 2019 3,800,000 4,100,000 2020 Costs incurred during the year Estimated costs to complete as of year-end 3,900,000

Explanation / Answer

Gross profit to be recognized under Percentage of completion method = (costs incurred till date / estimated total costs) * expected profit - previously recognized ptofits

Gross profit to be recognized in 2018 = (2,400,000/8,000,000)*2,000,000 - 0

= 600,000

----------

In the year 2019, it results in loss which is Contract price - estimated totsl costs

loss = 10,000,000 - (2,400,000+3,800,000+4,100,000)

= 300,000

When there are losses, lossess are recognized completely

Loss to be recognized in 2019 = (300,000) - 600,000 = (900,000)

----------

In the year 2020, it results in loss which is Contract price - estimated totsl costs

loss = 10,000,000 - (2,400,000+3,800,000+3,900,000)

= 100,000

When there are losses, lossess are recognized completely

Profit to be recognized in 2020 = (100,000) - [(900,000) + 600,000]

= 200,000

Related Questions

Navigate

• Browse (All)
• Browse I
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.