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	$	3,600,000			$	4,050,000			$	1,485,000
Estimated costs to complete as of year-end		5,400,000				1,350,000				0
Billings during the year		3,000,000				4,650,000				2,350,000
Cash collections during the year		2,800,000				4,600,000				2,600,000

Westgate Construction uses the completed contract method of accounting for long-term construction contracts.

Required:

1. Calculate the amount of revenue and gross profit (loss) to be recognized in each of the three years.
2-a. In the journal below, complete the necessary journal entries for the year 2018 (credit "Various accounts" for construction costs incurred).
2-b. In the journal below, complete the necessary journal entries for the year 2019 (credit "Various accounts" for construction costs incurred).
2-c. In the journal below, complete the necessary journal entries for the year 2020 (credit "Various accounts" for construction costs incurred).

Answer 1

Calculate The Amount Of Revenue And Gross Profit (Loss) To Be Recognized In Each Of The Three Years.

Year		Gross Profit
2018		0
2019		0
2020	($10000000-3600000-4050000-1485000)	$865000
Under Completed Contract Method Profit Only Recognized On Completion Of Contract

Journal Entries for the Year 2018

Date	Account Title	Debit	Credit
	Construction In Progress	$3600000
	Various Accounts		$3600000
	(To Record Current Year Construction Costs)
	Accounts Receivable	$3000000
	Billing On Construction Contract		$3000000
	(To Record Progress Billings)
	Cash	$2800000
	Accounts Receivable		$2800000
	(To Record Cash Collections)

Journal Entries for the Year 2019

Date	Account Title	Debit	Credit
	Construction In Progress	$4050000
	Various Accounts		$4050000
	(To Record Current Year Construction Costs)
	Accounts Receivable	$4650000
	Billing On Construction Contract		$4650000
	(To Record Progress Billings)
	Cash	$4600000
	Accounts Receivable		$4600000
	(To Record Cash Collections)

                Journal Entries for the Year 2020

Date	Account Title	Debit	Credit
	Construction In Progress	$1485000
	Various Accounts		$1485000
	(To Record Current Year Construction Costs)
	Accounts Receivable	$2350000
	Billing On Construction Contract		$2350000
	(To Record Progress Billings)
	Cash	$2600000
	Accounts Receivable		$2600000
	(To Record Cash Collections)
	Construction In Progress	$865000
	Cost Of Construction	$9135000
	Revenue From Contracts		$10000000