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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.

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. (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 $ 3,215,000
Estimated costs to complete as of year-end 5,810,000 3,115,000 0

Solutions

Expert Solution

I am solving both parts for you.

Year Revenue Recognized Gross Profit Recognised
2021 3000000 510000
2022 4800000 816000
2023 2200000 191400

Working Note:

% of Completion
Actual Costs to date / Total Estimated costs = % of completion
Actual Costs to date Estimated total costs
2021 2490000 8300000 30%
2022 6474000 8300000 78%
2023 8482600 8482600 100%
2021
To date Recognised in previous year Recognised in 2021
Construction Revenue 3000000 0 3000000
Construction Expense 2490000 0 2490000
Gross Profit (loss) 510000 0 510000
2022
To date Recognised in previous year Recognised in 2022
Construction Revenue 7800000 3000000 4800000
Construction Expense 6474000 2490000 3984000
Gross Profit (loss) 1326000 510000 816000
2023
To date Recognised in previous year Recognised in 2023
Construction Revenue 10000000 7800000 2200000
Construction Expense 8482600 6474000 2008600
Gross Profit (loss) 1517400 1326000 191400

4)

Year Revenue Recognized Gross Profit Recognised
2021 3000000 510000
2022 3693206 -121794
2023 3306794 91794


Working:

% of Completion
Actual Costs to date / Total Estimated costs = % of completion
Actual Costs to date Estimated total costs
2021 2490000 8300000 30%
2022 6305000 9420000 67%
2023 9520000 9520000 100%
2021
To date Recognised in previous year Recognised in 2021
Construction Revenue 3000000 0 3000000
Construction Expense 2490000 0 2490000
Gross Profit (loss) 510000 0 510000
2022
To date Recognised in previous year Recognised in 2022
Construction Revenue 6693206 3000000 3693206
Construction Expense 6305000 2490000 3815000
Gross Profit (loss) 388206 510000 -121794
2023
To date Recognised in previous year Recognised in 2023
Construction Revenue 10000000 6693206 3306794
Construction Expense 9520000 6305000 3215000
Gross Profit (loss) 480000 388206 91794

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