Problem 5-10 Long-term contract; revenue recognition over time [LO5-8, 5-9] [The

Question

Problem 5-10 Long-term contract; revenue recognition over time [LO5-8, 5-9] [The following information applies to the questions displayed below.j 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 2020 Cost incurred during the year Estimated costs to complete as of year-end Billings during the year Cash collections during the year 2019 $2,542,000 $3,772,000 $2,074,600 1,886,000 4,294,000 3,800,000 5,658,000 2,020,000 1,810,000 0 3,686,000 4,390,000 Westgate recognizes revenue over time according to percentage of completion Problem 5-10 Part 1 Required: 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.) 2018 2019 2020 Revenue Gross profit (loss)

Explanation / Answer

Solution 1:

Computation of % of completion, revenue recognition and Gross Profit - Westgate Construction Company Year Actual cost incurred (A) Total cost incurred till date (B) Total estimated Cost ( C ) % of completion (D) (B/C) Contract Price
(E) Total Revenue to be recoganized (F) (E * D) Revenue for current period (G) Gross Profit (H) (G - A) 2018 $2,542,000.00 $2,542,000.00 $8,200,000.00 31% $10,000,000.00 $3,100,000.00 $3,100,000.00 $558,000.00 2019 $3,772,000.00 $6,314,000.00 $8,200,000.00 77% $10,000,000.00 $7,700,000.00 $4,600,000.00 $828,000.00 2020 $2,074,600.00 $8,388,600.00 $8,388,600.00 100% $10,000,000.00 $10,000,000.00 $2,300,000.00 $225,400.00

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