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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	$	2,580,000		$	4,042,000		$	2,175,800
Estimated costs to complete as of year-end		6,020,000			1,978,000			0
Billings during the year		2,060,000			4,562,000			3,378,000
Cash collections during the year		1,830,000			4,200,000			3,970,000

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	$	2,580,000		$	3,830,000		$	3,990,000
Estimated costs to complete as of year-end		6,020,000			4,160,000			0

Answer 1

There are two questions asked above so i will answer both one by one.

First the upper side question and then Question 5 on below.

Westgate Construction Company:

The percentage of completion method of revenue recognition is a concept in accounting that refers to a method by which a business recognizes revenue on an ongoing basis depending on the stages of a project’s completion. In other words, the percentage of completion method is used for longer-term projects and recognizes revenue and expenses as a percentage of the project’s completion during the period.

Computation of revenue and gross profit (loss) to be recognized in each of the three years:

				Amount in $
Particulars		2021	2022	2023
Cost incurred during the year	A	2,580,000	4,042,000	2,175,800
Cost incurred during previous year/years	B	-	2,580,000	6,622,000
Estimated cost still to be incurred	C	6,020,000	1,978,000	-
Total Cost	D=A+B+C	8,600,000	8,600,000	8,797,800
Percentage Completion till date	E=(A+B)/D	30.00%	77.00%	100.00%
Percentage work already completed till last year	F	0	30.00%	77.00%
Percentage revenue to be considered this year	G=E-F	30.00%	47.00%	23.00%
Revenue	$	3,000,000	4,700,000	2,300,000
	H=10000000*G	(10000000*30%)	(10000000*47%)	(10000000*23%)
Expenses	$	2,580,000	4,042,000	2,175,800
Gross Profit		420,000	658,000	124,200

Solution of Ques 5:

Computation of revenue and gross profit (loss) to be recognized in each of the three years:

				Amount in $
Particulars		2021	2022	2023
Cost incurred during the year	A	2,580,000	3,830,000	3,990,000
Cost incurred during previous year/years	B	-	2,580,000	6,410,000
Estimated cost still to be incurred	C	6,020,000	4,160,000	-
Total Cost	D=A+B+C	8,600,000	10,570,000	10,400,000
Percentage Completion till date	E=(A+B)/D	30.00%	60.64%	100.00%
Percentage work already completed till last year	F	0	30.00%	60.64%
Percentage revenue to be considered this year	G=E-F	30.00%	30.64%	39.36%
Revenue	$	3,000,000	3,064,333	3,935,667
	H=10000000*G	(10000000*30%)	(10000000*30.64%)	(10000000*39.36%)
Expenses	$	2,580,000	3,830,000	3,990,000
Gross Profit		420,000	(765,667)	(54,333)