Summary Business Accounting

Question:

In 2013, 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 2015. Information related to the contract is as

follows:




Westgate uses the percentage-of-completion method of accounting for long-term construction contracts.

Required:

1. Calculate the amount of gross profit to be recognized in each of the three years.

2. Prepare all necessary journal entries for each of the years (credit various accounts for construction

costs incurred).

3. Prepare a partial balance sheet for 2013 and 2014 showing any items related to the contract.

4. Calculate the amount of gross profit to be recognized in each of the three years assuming the following

costs incurred and costs to complete information:




Calculate the amount of gross profit to be recognized in each of the three years assuming the following

costs incurred and costs to complete information:




Answer:

, Requirement 1

2013 2014 2015

Contract price $10,000,000 $10,000,000 $10,000,000

Actual costs to date 2,400,000 6,000,000 8,200,000

Estimated costs to complete 5,600,000 2,000,000 -0-

Total estimated costs 8,000,000 8,000,000 8,200,000

Estimated gross profit (loss)

(actual in 2015) $ 2,000,000 $ 2,000,000 $ 1,800,000



Gross profit (loss) recognition:



2013: $2,400,000

= 30.0% x $2,000,000 = $600,000

$8,000,000



2014: $6,000,000

= 75.0% x $2,000,000 = $1,500,000 – 600,000 = $900,000

$8,000,000



2015: $1,800,000 – 1,500,000 = $300,000

Requirement 2




2013 2014 2015