In 2016, the Westgate Construction Company entered into a contract to construct
ID: 2427831 • Letter: I
Question
In 2016, 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 2018. Information related to the contract is as follows:
Calculate the amount of revenue and gross profit to be recognized in each of the three years
2.
Record construction costs for all 3 years
Record progress billings for all 3 years
Record cash collections for all 3 years
Record gross profit for all 3 years
3. Complete the information required below to prepare a partial balance sheet for 2016 and 2017 showing any items related to the contract. Indicate whether any of the amounts shown are contract assets or contract liabilities.
4.
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. (Do not round intermediate calculations and round your final answers to the nearest whole dollar amount. Loss amounts should be indicated with a minus sign.)
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. (Do not round intermediate calculations and round your final answers to the nearest whole dollar amount. Loss amounts should be indicated with a minus sign.)
In 2016, 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 2018. Information related to the contract is as follows:
Explanation / Answer
Solution.
years 2016
Cost incurred todate $ 2,059,000
+ Estimated costs to complete as of year-end 5,041,000
= Estimated total costs $7,100,000
% of completion = $ 2,059,000 / $7,100,000 = 29%
Revenue to be recognised = $10m x 29% = $2,900,000
- Cost incurred$ 2,059,000
= Gross profit $841,000
2017
Cost incurred todate $2,627,000
+ Estimated costs to complete as of year-end 2,414,000
= Estimated total costs $5,041,000
% of completion =$2,627,000 / $5,041,000 = 52%
Revenue to be recognised todate = $10m x 52% = $5,200,000, but you already recognised $2.9m in 2016, so that leaves $2,300,000 to be recognised in 2017
Revenue to be recognised in 2017 $2,300,000
- Cost incurred in 2017 $2,627,000
= Gross profit -$327,000
2018
Cost incurred todate $2,655,400
+ Estimated costs to complete as of year-end 0
= Estimated total costs $2,655,400
% of completion = 100%
Revenue to be recognised todate = $10m x 100% = $10,000,000, but you already recognised $2.9m in 2016, and $2,300,000 in 2017, so that leaves $4,800,000 to be recognised in 2015
Revenue to be recognised in 2018 $4,800,000
- Cost incurred in 2018 $ 2,655,400
= Gross profit $2,144,600
2. journal Entry. for year 2016
4 necessary journal entries for the year 2013
Record construction costs.
Dr WIP $2,059,000
Cr Cash/Accounts payable $2,059,000
Record progress billings.
Dr Accounts receivable 2,190,000
Cr Progress billings 2,190,000
Record cash collections.
Dr Cash 1,895,000
Cr AR 1,895,000
Record gross profit.
Dr Progress billings $2,900,000
Cr Revenue $2,900,000
Dr Cost of services $2,059,000
Cr WIP $2,059,000
4.
years 2016
Cost incurred todate $ 2,059,000
+ Estimated costs to complete as of year-end 5,041,000
= Estimated total costs $7,100,000
% of completion = $ 2,059,000 / $7,100,000 = 29%
Revenue to be recognised = $10m x 29% = $2,900,000
- Cost incurred$ 2,059,000
= Gross profit $841,000
2017
Cost incurred todate $3,895,000
+ Estimated costs to complete as of year-end 3,195,000
= Estimated total costs $7,090,000
% of completion =$3,895,000 / $7,090,000 = 54.93% or 55%
Revenue to be recognised todate = $10m x 55% = $5,500,000, but you already recognised $2.9m in 2016, so that leaves $2,600,000 to be recognised in 2017
Revenue to be recognised in 2016 $2,600,000
- Cost incurred in 2017 $3,895,000
= Gross profit -$1,295,000
2018
Cost incurred todate $3,295,000
+ Estimated costs to complete as of year-end 0
= Estimated total costs $3,295,000
% of completion = 100%
Revenue to be recognised todate = $10m x 100% = $10,000,000, but you already recognised $2.9m in 2016, and $2,600,000 in 2017, so that leaves $5,500,000 to be recognised in 2018
Revenue to be recognised in 2018 $4,500,000
- Cost incurred in 2018 $3,295,000
= Gross profit $1,205,000.
5.
years 2016
Cost incurred todate $ 2,059,000
+ Estimated costs to complete as of year-end 5,041,000
= Estimated total costs $7,100,000
% of completion = $ 2,059,000 / $7,100,000 = 29%
Revenue to be recognised = $10m x 29% = $2,900,000
- Cost incurred$ 2,059,000
= Gross profit $841,000
2017
Cost incurred todate $3,895,000
+ Estimated costs to complete as of year-end $4,290,000
= Estimated total costs $8,185,000
% of completion =$3,895,000 / $8,185,000 = 47.58% or 48%
Revenue to be recognised todate = $10m x 48% = $4,800,000, but you already recognised $2.9m in 2016, so that leaves $1,900,000 to be recognised in 2017
Revenue to be recognised in 2016 $1,900,000
- Cost incurred in 2017 $3,895,000
= Gross profit -$1,995,000
2018
Cost incurred todate $4,185,000
+ Estimated costs to complete as of year-end 0
= Estimated total costs $4,185,000
% of completion = 100%
Revenue to be recognised todate = $10m x 100% = $10,000,000, but you already recognised $2.9m in 2016, and $1,900,000 in 2017, so that leaves $5,200,000 to be recognised in 2018
Revenue to be recognised in 2015 $5,200,000
- Cost incurred in 2018 $4,185,000
= Gross profit $1,015,000.
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