Question

In 2021, 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 2023. Information related to the contract is as follows:

	2021			2022			2023
Cost incurred during the year	$	2,550,000		$	4,250,000		$	1,870,000
Estimated costs to complete as of year-end		5,950,000			1,700,000			0
Billings during the year		2,050,000			4,750,000			3,200,000
Cash collections during the year		1,825,000			4,100,000			4,075,000

Westgate recognizes revenue over time according to percentage of completion.

1. Calculate the amount of revenue and gross profit (loss) to be recognized in each of the three years.

2021 2022 2023

Revenue ______ _______ ________

Gross P _______ _______ ________

2-a. In the journal below, complete the necessary journal entries for the year 2021 (credit "Various accounts" for construction costs incurred).
2-b. In the journal below, complete the necessary journal entries for the year 2022 (credit "Various accounts" for construction costs incurred).
2-c. In the journal below, complete the necessary journal entries for the year 2023 (credit "Various accounts" for construction costs incurred).

3. Complete the information required below to prepare a partial balance sheet for 2021 and 2022 showing any items related to the contract.

4. Calculate the amount of revenue and gross profit (loss) to be recognized in each of the three years assuming the following costs incurred and costs to complete information.

	2021			2022			2023
Costs incurred during the year	$	2,550,000		$	3,825,000		$	3,225,000
Estimated costs to complete as of year-end		5,950,000			3,125,000			0

2021 2022 2023

Revenue ______ _______ ________

Gross P _______ _______ ________

5. Calculate the amount of revenue and gross profit (loss) to be recognized in each of the three years assuming the following costs incurred and costs to complete information.

	2021			2022			2023
Costs incurred during the year	$	2,550,000		$	3,825,000		$	3,975,000
Estimated costs to complete as of year-end		5,950,000			4,150,000			0

2021 2022 2023

Revenue ______ _______ ________

Gross P _______ _______ ________

Answer 1

Answer :

Particulars		2021			2022			2023
Cost incurred during the year	$	2,550,000		$	4,250,000		$	1,870,000
Estimated costs to complete as of year-end		5,950,000			1,700,000			0
Billings during the year		2,050,000			4,750,000			3,200,000
Cash collections during the year		1,825,000			4,100,000			4,075,000

Calculate the amount of revenue and gross profit (loss) to be recognized in each of the three years.

2021 2022 2023

Answer :

Particulars	2021	2022	2023
% of completion	=25,50,000 / 59,50,000 =42.86%	=42,50,000 / 59,50,000 = 71.42%	=18,70,000 /59,50,000 = 31.43% To be considered for current year = (100 - 71.42) = 28.58% (this adjustment is done because total value exceeded 100%)
Revenue to be recognized for the year	=100,00,000*42.86% =4,28,60,000	=100,00,000*71.42% =7,14,20,000	=100,00,000*28.58% =2,85,80,000

Journal Entries :

2021

Construction in progress Dr. 25,50,000

Bank a/c Cr. 25,50,000

(Cost incurred for the contract in the year)

Accounts receivable Dr. 20,50,000

To Billings on construction contract Cr. 20,50,000

(Billimgs during the year)

Bank A/c Dr 18,25,500

Accounts receivable Cr 18,25,000

(Cash collections during the year)

Accounts receivable a/c Dr 18,25,000

Unbilled contracts receivable a/c Dr   4,10,35,000

Contract revenue earned a/c Cr. 4,28,60,000

(Revenue recognized for the year)

Journal Entries :

2022

Construction in progress Dr. 42,50,000

Bank a/c Cr. 42,50,000

(Cost incurred for the contract in the year)

Accounts receivable Dr. 47,50,000

To Billings on construction contract Cr. 47,50,000

(Billimgs during the year)

Bank A/c Dr 41,00,000

Accounts receivable Cr 41,00,000

(Cash collections during the year)

Accounts receivable a/c Dr 47,50,000

Unbilled contracts receivable a/c Dr 6,66,70,000

Contract revenue earned a/c Cr. 7,14,20,000

(Revenue recognized for the year)

Journal Entries :

2023

Construction in progress Dr. 18,70,000

Bank a/c Cr. 18,70,000

(Cost incurred for the contract in the year)

Accounts receivable Dr. 32,00,000

To Billings on construction contract Cr. 32,00,000

(Billimgs during the year)

Bank A/c Dr 40,75,500

Accounts receivable Cr 4075,000

(Cash collections during the year)

Accounts receivable a/c Dr 4075,000

Unbilled contracts receivable a/c Dr 2,45,05,000

Contract revenue earned a/c Cr. 2,85,80,000

(Revenue recognized for the year)