Question

In: Accounting

In 2021, the Westgate Construction Company entered into a contract to construct a road for Santa...

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 $ 2,490,000 $ 3,984,000 $ 2,008,600
Estimated costs to complete as of year-end 5,810,000 1,826,000 0
Billings during the year 2,030,000 4,444,000 3,526,000
Cash collections during the year 1,815,000 3,900,000 4,285,000


Westgate recognizes revenue over time according to percentage of completion.

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. (Do not round intermediate calculations and round your final answers to the nearest whole dollar amount. Loss amounts should be indicated with a minus sign.)

2021 2022 2023
Costs incurred during the year $ 2,490,000 $ 3,815,000 $ 3,945,000
Estimated costs to complete as of year-end 5,810,000 4,130,000 0

Solutions

Expert Solution

2021 2022 2023
Revenue = $     30,00,000 $     30,42,166 $ 39,57,834
Gross Profit = $       5,10,000 $     -7,72,834 $       12,834
Workings:
Construction Cost incurred till date = $     24,90,000
Estimated additional cost to complete = $     58,10,000
Total estimated cost = $     83,00,000
(i) Percentage of Completion ($2490000 / $8300000) = 30%
(ii) Total Project Value = $ 1,00,00,000
(i)*(ii) Revenue to date = $     30,00,000
Revenue recognized for the year 2021 = $     30,00,000
Less: Construction Cost incurred for the year = $     24,90,000
Gross profit recognize = $       5,10,000
Construction Cost incurred till date = $     63,05,000
Estimated additional cost to complete = $     41,30,000
Total estimated cost = $ 1,04,35,000
(i) Percentage of Completion ($6305000 / $10435000) = 60%
(ii) Total Project Value = $ 1,00,00,000
(i)*(ii) Revenue to date = $     60,42,166
Revenue recognized for the year 2022 = $     30,42,166
Less: Construction Cost incurred for the year = $     38,15,000
Gross profit recognize = $     -7,72,834
Revenue recognized for the year 2023 = $     39,57,834
Less: Construction Cost incurred for the year = $     39,45,000
Gross profit recognize = $           12,834

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