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	$	2,610,000		$	3,162,000		$	2,230,800
Estimated costs to complete as of year-end		6,390,000			2,028,000			0
Billings during the year		2,100,000			3,672,000			4,228,000
Cash collections during the year		1,850,000			3,000,000			5,150,000

Westgate recognizes revenue over time according to percentage of completion.

Required:
1. Calculate the amount of revenue and gross profit (loss) to be recognized in each of the three years. (Do not round intermediate calculations. Loss amounts should be indicated with a minus sign.)

Answer 1

Solution

	2021	2022	2023
Revenue	$             2,900,000	$        4,500,000	$            2,600,000
Gross profit	$                290,000	$        1,338,000	$                369,200

Working

		2021	2022	2023
A	Contract Price	$ 10,000,000	$ 10,000,000	$ 10,000,000
B	Cost Incurred to Date	$ 2,610,000	$ 5,772,000	$ 8,002,800
C	Estimated cost yet to be incurred to complete the contract	$ 6,390,000	$ 2,028,000	$ 0
D = B+C	Total Cost	$ 9,000,000	$ 7,800,000	$ 8,002,800
E = (D/B) x 100	% of Completion	29%	74%	100%
F = A x E	Revenue to date	$ 2,900,000	$ 7,400,000	$ 10,000,000
G	Revenue of Previous year	$ 0	$ 2,900,000	$ 7,400,000
H = F - G	Net Revenue this year	$ 2,900,000	$ 4,500,000	$ 2,600,000
I	Cost to date	$ 2,610,000	$ 5,772,000	$ 8,002,800
J	Cost to date of previous year	$ 0	$ 2,610,000	$ 5,772,000
K = I - J	Net Cost for the year	$ 2,610,000	$ 3,162,000	$ 2,230,800
L = H - K	Gross Profits	$ 290,000	$ 1,338,000	$ 369,200