Question

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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	$	2,100,000		$	2,450,000		$	2,695,000
Estimated costs to complete as of year-end		4,900,000			2,450,000			0
Billings during the year		2,200,000			2,350,000			5,450,000
Cash collections during the year		1,900,000			2,300,000			5,800,000

Westgate recognizes revenue over time according to percentage of completion.

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).

Record construction costs.

Record progress billings.

Record cash collections.

Record gross profit (loss).

	Date General Journal Debit Credit 2021

Answer 1

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Westgate Construction Company
Ans to 1
Particulars	2021	2022	2023	Note
Contract Price	10,000,000	10,000,000	10,000,000	A
Cost Incurred during the year	2,100,000	2,450,000	2,695,000	C
Cost Incurred to date	2,100,000	4,550,000	7,245,000
Estimated cost to complete	4,900,000	2,450,000	-	D
Estimated total cost	7,000,000	7,000,000	7,245,000	E=C+B
(Cost Incurred to date+ Estimated cost to complete )
Percentage complete	30.00%	65.00%	100.00%	F=B/E
(Cost Incurred to date/Estimated total cost)
Revenue to be recognized	3,000,000	3,500,000	3,500,000	G

(Contract Price*Percentage complete)- revenue previously recognized

Year 2021: 30% completed. Revenue recognized = 30% x $ 10,000,000 = $ 3,000,000.

Year 2022: 65% completed. Revenue recognized = 65% x $ 10,000,000 – $ 3,000,000 (previously recognized) = $ 3,500,000.

Year 2023: 100% completed. Revenue recognized = 100% x $ 10,000,000 – $ 2,800,000- $ 3,500,000 (previously recognized) = $ 3,500,000.

Gross Profit/(Loss)	900,000	1,050,000	805,000	H=G-C
Billings during the year	2,200,000.00	2,350,000.00	5,450,000.00
Cash collections during the year	1,900,000.00	2,300,000.00	5,800,000.00

Ans to 2 a, b and c		2021		2022		2023
	Journal Entries	Debit $	Credit $		Debit $	Credit $		Debit $	Credit $
Costs Incurred	CIP (Work-in-progress)	2,100,000			2,450,000			2,695,000
	Cash		2,100,000			2,450,000			2,695,000
Billing	Accounts Receivable	2,200,000			2,350,000			5,450,000
	Billing on CIP		2,200,000			2,350,000			5,450,000
Receiving Payments	Cash	1,900,000			2,300,000			5,800,000
	Accounts Receivable		1,900,000			2,300,000			5,800,000
Period end adjustments for Revenue	Construction Expense	2,100,000			2,450,000			2,695,000
(Gross Profit entry)	CIP (Work-in-progress)	900,000			1,050,000			805,000
	Construction Revenue		3,000,000			3,500,000			3,500,000
Completing the Project	Billing on CIP							10,000,000
	CIP (Work-in-progress)								10,000,000