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	$	3,471,000			$	4,005,000			$	1,566,400
Estimated costs to complete as of year-end		5,429,000				1,424,000				0
Billings during the year		2,900,000				4,576,000				2,524,000
Cash collections during the year		2,700,000				4,500,000				2,800,000

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
Cost incurred during the year	$	2,490,000			$	3,845,000			$	3,290,000
Estimated costs to complete as of year-end		5,690,000				3,190,000				0

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
Cost incurred during the year	$	2,490,000			$	3,845,000			$	4,035,000
Estimated costs to complete as of year-end		5,690,000				4,190,000				0

3.

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

	Balance Sheet (Partial) 2021 2022 Current assets: Accounts receivable Construction in progress Less: Billings Costs in excess of billings $0 $0 Current liabilities: ? $0 $0

4.

Calculate the amount of revenue and gross profit (loss) to be recognized in each of the three years using the above information. (Leave no cells blank - be certain to enter "0" wherever required. Loss amounts should be indicated with a minus sign.)

	2021 2022 2023 Revenue Gross profit (loss)

5.

Calculate the amount of revenue and gross profit (loss) to be recognized in each of the three years using the above information. (Leave no cells blank - be certain to enter "0" wherever required. Loss amounts should be indicated with a minus sign.)

	2021 2022 2023 Revenue Gross profit (loss)

Answer 1

 

Westgate Construction Company
Workings for Answer 3	Calculation of Gross Profit
Particulars	2021	2022	2023	Note
Contract Price	10,000,000	10,000,000	10,000,000	A
Cost Incurred during the year	3,471,000	4,005,000	1,566,400	C
Cost Incurred to date	3,471,000	7,476,000	9,042,400	B
Estimated cost to complete	5,429,000	1,424,000	-	D
Estimated total cost	8,900,000	8,900,000	9,042,400	E=B+D
(Cost Incurred to date+ Estimated cost to complete )
Percentage complete	39.00%	84.00%	100.00%	F=B/E
(Cost Incurred to date/Estimated total cost)
Revenue to be recognized	3,900,000	4,500,000	1,600,000	G

(Contract Price*Percentage complete)- revenue previously recognized

Year 2021: 39% completed. Revenue recognized = 39% x $ 10,000,000 = $ 3,900,000.

Year 2022: 84% completed. Revenue recognized = 84% x $ 10,000,000 – $ 3,900,000 (previously recognized) = $ 4,500,000.

Year 2023: 100% completed. Revenue recognized = 100% x $ 10,000,000 – $ 3,900,000- $ 4,500,000 (previously recognized) = $ 1,600,000.

Gross Profit/(Loss)	429,000	495,000	33,600	H=G-C
Billings during the year	2,900,000.00	4,576,000.00	2,524,000.00
Cash collections during the year	2,700,000.00	4,500,000.00	2,800,000.00

Workings for Balance Sheet
CIP (Work-in-progress)
Account	Amount ($)
Cash	3,471,000.00
Gross Profit	429,000.00
Balance at the end of 2021	3,900,000.00
Cash	4,005,000.00
Gross Profit	495,000.00
Balance at the end of 2022	8,400,000.00
Billing on CIP
Account	Amount ($)
Accounts Receivable	2,900,000.00
Balance at the end of 2021	2,900,000.00
Accounts Receivable	4,576,000.00
Balance at the end of 2022	7,476,000.00

Ans to 3
Balance Sheet (Partial)	2021	2022
Current Assets:
CIP (Work-in-progress)	3,900,000.00	8,400,000.00
	3,900,000	8,400,000
Current Liabilities:
Billing on CIP	2,900,000.00	4,576,000.00
	2,900,000.00	4,576,000.00

Answer 4	Calculation of Gross Profit
Particulars	2018	2019	2020
Contract Price	10,000,000	10,000,000	10,000,000	A
Cost Incurred during the year	2,490,000	3,845,000	3,290,000	C
Cost Incurred to date	2,490,000	6,335,000	9,625,000	B
Estimated cost to complete	5,690,000	3,920,000	-	D
Estimated total cost	8,180,000	10,255,000	9,625,000	E=C+B
(Cost Incurred to date+ Estimated cost to complete )
Percentage complete	30.44%	61.77%	100.00%	F=B/E
(Cost Incurred to date/Estimated total cost)

(Contract Price*Percentage complete)- revenue previously recognized

Year 2021: 30.44% completed. Revenue recognized = 30.44% x $ 10,000,000 = $ 3,044,010.

Year 2022: 61.77% completed. Revenue recognized = 61.77% x $ 10,000,000 – $ 3,044,010 (previously recognized) = $ 3,133,465.

Year 2023: 100% completed. Revenue recognized = 100% x $ 10,000,000 – $ 3,044,010- $ 3,133465 (previously recognized) = $ 3,822,526.

Gross Profit/(Loss)

554,010

(711,535)

532,526

H=G-C

Answer 5	Calculation of Gross Profit
Particulars	2018	2019	2020
Contract Price	10,000,000	10,000,000	10,000,000	A
Cost Incurred during the year	2,490,000	3,845,000	4,035,000	C
Cost Incurred to date	2,490,000	6,335,000	10,370,000	B
Estimated cost to complete	5,690,000	4,190,000	-	D
Estimated total cost	8,180,000	10,525,000	10,370,000	E=C+B
(Cost Incurred to date+ Estimated cost to complete )
Percentage complete	30.44%	60.19%	100.00%	F=B/E
(Cost Incurred to date/Estimated total cost)
Revenue to be recognized	3,044,010	2,974,993	3,980,998	G

(Contract Price*Percentage complete)- revenue previously recognized

Year 2021: 30.44% completed. Revenue recognized = 30.44% x $ 10,000,000 = $ 3,044,010.

Year 2022: 60.19% completed. Revenue recognized = 60.19% x $ 10,000,000 – $ 3,044,010 (previously recognized) = $ 2,074,993.

Year 2023: 100% completed. Revenue recognized = 100% x $ 10,000,000 – $ 3,044,010- $ 2,074,993 (previously recognized) = $ 3,980,998.

Gross Profit/(Loss)

554,010

(870,007)

(54,002)

H=G-C