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 $ 2,156,000 $ 3,388,000 $ 2,371,600 Estimated costs to complete as of year-end 5,544,000 2,156,000 0 Billings during the year 2,130,000 3,414,000 4,456,000 Cash collections during the year 1,865,000 3,300,000 4,835,000 Westgate recognizes revenue over time according to percentage of completion.

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.)

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).

Answer 1

• Requirements 2

Requirement 2A
Date	Accounts title	Debit	Credit
2021	Construction in Progress	$2,156,000
	Various accounts		$2,156,000
	(construction cost incurred)
2021	Accounts receivables	$2,130,000
	Billing on Construction contracts		$2,130,000
	(amount billed during the year)
2021	Cash	$1,865,000
	Accounts receivables		$1,865,000
	(cash received)
2021	Construction in Progress	$644,000
	Cost of construction	$2,156,000
	Revenue from Long Term contract		$2,800,000
	(revenue recognised)
Requirement 2B
Date	Accounts title	Debit	Credit
2022	Construction in Progress	$3,388,000
	Various accounts		$3,388,000
	(construction cost incurred)
2022	Accounts receivables	$3,414,000
	Billing on Construction contracts		$3,414,000
	(amount billed during the year)
2022	Cash	$3,300,000
	Accounts receivables		$3,300,000
	(cash received)
2022	Construction in Progress	$1,012,000
	Cost of construction	$3,388,000
	Revenue from Long Term contract		$4,400,000
	(revenue recognised)
Requirement 2C
Date	Accounts title	Debit	Credit
2023	Construction in Progress	$2,371,600
	Various accounts		$2,371,600
	(construction cost incurred)
2023	Accounts receivables	$4,456,000
	Billing on Construction contracts		$4,456,000
	(amount billed during the year)
2023	Cash	$4,835,000
	Accounts receivables		$4,835,000
	(cash received)
2023	Construction in Progress	$428,400
	Cost of construction	$2,371,600
	Revenue from Long Term contract		$2,800,000
	(revenue recognised)
2023	Billing on Construction contracts	$10,000,000
	Construction in Progress		$10,000,000
	(to record completion of contract)

• Working

Working		2021	2022	2023
A	Contract Price	$10,000,000	$10,000,000	$10,000,000
B	Cost Incurred to Date	$2,156,000	$5,544,000	$7,915,600
C	Estimated cost yet to be incurred to complete the contract	$5,544,000	$2,156,000	$0
D = B+C	Total Cost	$7,700,000	$7,700,000	$7,915,600
E = (B/D) x 100	% of Completion	28.00%	72.00%	100.00%
F = A x E	Revenue to date	$2,800,000	$7,200,000	$10,000,000
G	Revenue of Previous year	$0	$2,800,000	$7,200,000
H = F - G	Net Revenue this year	$2,800,000	$4,400,000	$2,800,000
I (=B)	Cost to date	$2,156,000	$5,544,000	$7,915,600
J	Cost to date of previous year	$0	$2,156,000	$5,544,000
K = I - J	Net Cost for the year	$2,156,000	$3,388,000	$2,371,600
L = H - K	Gross Profits	$644,000	$1,012,000	$428,400