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 $ 2,581,000 $ 2,347,000 $ 3,049,200 Estimated costs to complete as of year-end 6,319,000 2,772,000 0 Billings during the year 2,090,000 2,838,000 5,072,000 Cash collections during the year 1,845,000 2,900,000 5,255,000 Westgate recognizes revenue over time according to percentage of completion.

1. Calculate the amount of revenue and gross profit (loss) to be recognized in each of the three years. (Do not round intermediate calculations. Loss amounts should be indicated with a minus sign.)

Answer 1

Total Estimated Revenue = 10000000

	2017	2018	2019
Cost incurred to date (A)	2581000	(2581000 + 2347000) =4928000	(3049200 + 4928000) =7977200
Estimated cost (B)	6319000	2772000	0
Estimated Total cost (C = A+B)	8902017	7700000	7977200
% complete (D=A/C)	29%	64%	100%
Billings	2090000	2838000	5072000
Cash collected	1845000	2900000	5255000
Revenue Recognised (E)	(10000000 * 29%) 2900000	(10000000 * 64%) 6400000	(10000000 * 100%) 10000000
Total Income/Loss recognized (E – A)	319000	1472000	2022800
Income/Loss recognized this year	319000	(1472000 – 319000) =1153000	(2022800 – 319000 – 1153000) =550800