P 5-5 Percentage-of-completion method
In 2011, 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 2013. Information related to the contract is as follows:
2011 2012 2013 Cost incurred during the year $2,400,000 $3,600,000 $2,200,000 Estimated costs to complete as of year-end 5,600,000 2,000,000 -0- Billings during the year 2,000,000 4,000,000 4,000,000 Cash collections during the year 1,800,000 3,600,000 4,600,000
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 2011 and 2012 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:
2011 2012 2013 Costs incurred during the year $2,400,000 $3,800,000 $3,200,000 Estimated costs to complete as of year-end 5,600,000 3,100,000
5. 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:
2011 2012 2013 Costs incurred during the year $2,400,000 $3,800,000 $3,900,000 Estimated costs to complete as of year-end 5,600,000 4,100,000 -0-
[This is a variation of Problem 5-5 modified to focus on the completed contract method.]
Required:
Complete the requirements of Problem 5-5 assuming that Westgate Construction uses the completed contract method.
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