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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:

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jepessoa

Answer:

revenue recognized

  • 2018 = $3,000,000
  • 2019 = $4,500,000
  • 2020 = $2,500,000

gross profit

  • 2018 = $600,000
  • 2019 = $900,000
  • 2020 = $300,000

Explanation:

Percentage of                      2018              2019               2020

completion method

Cost incurred in                   $0         $2,400,000    $6,000,000

previous year

+ Cost incurred         $2,400,000 $3,600,000    $2,200,000

during the year

Total cost incurred       $2,400,000 $6,000,000    $8,200,000

+ Estimated cost to      $5,600,000 $2,000,000            $0

be incurred

Total estimated cost    $8,000,000 $8,000,000    $8,200,000

to be incurred

Percentage of              30%               75%                  100%

completion

 

Total revenue        $10,000,000  $10,000,000    $10,000,000

Total revenue         $3,000,000   $7,500,000    $10,000,000

recognized (% of completion x total revenue)

- Revenue recognized       ($0)         ($3,000,000)    ($7,500,000)

in previous year    

= revenue recognized  $3,000,000   $4,500,000     $2,500,000

in current year

gain/loss                                2018                 2019          2020

Revenue                        $3,000,000  $4,500,000    $2,500,000

- Cost incurred       ($2,400,000) ($3,600,000)   ($2,200,000)

Gross profit                   $600,000     $900,000       $300,000

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