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: 2023 $2,849, eee Cost incurred during the year Estimated costs to complete as of year-end Billings during the year Cash collections during the year 2021 $2,072,00 5,328,000 2,160, eee 1,880, eee 2022 $2,738,000 2,590,000 2,650, eee 2,700,eee 5,190, eee 5,420, eee Westgate recognizes revenue over time according to percentage of completion Required: 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.) 2021 2022 Revenue Gross profit (loss) Prev 3.495.7 of 8 Next >

Answer 1

2021 $2,160,000 2022 $2,650,000 2023 $5,190,000 Billings during the year Costs incurred during the year Cumulative Costs to date Add: Estimated costs to complete as of year-end Estimated total costs 2021 $2,072,000 $2,072,000 $5,328,000 $7,400,000 2022 $2,738,000 $4,810,000 $2,590,000 $7,400,000 2023 $2,849,000 $7,659,000 [2022=$2072000+$2738000; 2023=$4810000+$2849000] $0 $7,659,000 Therefore, % of completion 28.00% 65.00% 100.00% [For 2021: $2072000 / $7400000 = 28%; For 2022: $4810000 / $7400000 = 65%; For 2023: $7659000 / $7659000 = 100%] Contract price of this project Less: Cumulative cost to date till 2020 This contract's estimated gross profit when negotiated Contract value completed Less: Revenue recognized already till last year Revenue to recognize (based on % of completion) Less: Cost incurred during the year Gross Profit (Loss) to be recognized $10,000,000 [$2160000 + $2650000 + $5190000] $7,659,000 [As calculated above] $2,341,000 --> Spread over 3 years of contract as below 2021 2022 2023 $2,800,000 $6,500,000 $10,000,000 ($10000000 x 28%; $10000000 x 65%; $10000000 x 100%] $0 $2,800,000 $6,500,000 (Ref: Above line] $2,800,000 $3,700,000 $3,500,000 $2,072,000 $2,738,000 $2,849,000 (Given] $728,000 $962,000 $651,000

Account Titles Requirement-2(a) 2021 Debit Credit Requirement-2(b) 2022 Debit Credit Requirement-2(c) 2023 Debit Credit $2,072,000 $2,738,000 $2,849,000 (Cost incurred during the year] Construction in progress Various Accounts (Materials, Labor, Etc.) (To record construction costs) $2,072,000 $2,738,000 $2,849,000 $2,160,000 $2,650,000 $5,190,000 [Billings during the year] Accounts receivable Billings on construction contract (To record progress billings) $2,160,000 $2,650,000 $5,190,000 $1,880,000 $2,700,000 $5,420,000 [Given] Cash Accounts receivable (To record cash collections) $1,880,000 $2,700,000 $5,420,000 $2,072,000 $728,000 $2,738,000 $962,000 $2,849,000 $651,000 Cost of construction Construction in progress Revenue from long-term contracts (To record gross profit) [Cost incurred during the year] [Gross Profit (loss) for the year as per workings] $3,500,000 [Balancing figure] $2,800,000 $3,700,000 No Entry No Entry $10,000,000 Billings on construction contract Construction in progress (To close these accounts) $10,000,000 [Total Contract Price]

3) 2021 2022 Balance Sheet (Partial) Current Assets: Accounts Receivable Construction in progress Less: Billings Costs and profit in excess of billings $280,000 $230,000 [2021 = $2160000 - $1880000; 2022=$280000 + ($2650000 - $2700000)] $2,800,000 ($2,160,000) $6,500,000 ($4,810,000) [2022 = $2160000 + $2650000] $640,000 $1,690,000 Current Liabilities: Billings in excess of costs $88,000 $0 [2021 = $2160000 - $2072000; 2022 = $88000 + ($2650000 - $2738000]

2021 $2,160,000 2022 $2,650,000 2023 $5,190,000 Billings during the year Costs incurred during the year Cumulative Costs to date Add: Estimated costs to complete as of year-end Estimated total costs 2021 $2,072,000 $2,072,000 $5,328,000 $7,400,000 2022 $3,880,000 $5,952,000 $3,180,000 $9,132,000 2023 $3,280,000 $9,232,000 [2022=$2072000+$3880000; 2023=$5952000+$3280000] $0 $9,232,000 Therefore, % of completion 28.00% 65.18% 100.00% [For 2021: $2072000 / $7400000 = 28%; For 2022: $5952000 / $9132000 = 65.18%; For 2023: $9232000 / $9232000 = 100%] Contract price of this project Less: Cumulative cost to date till 2020 This contract's estimated gross profit when negotiated Contract value completed Less: Revenue recognized already till last year Revenue to recognize (based on % of completion) Less: Cost incurred during the year Gross Profit (Loss) to be recognized $10,000,000 [$2160000 + $2650000 + $5190000] $9,232,000 [As calculated above] $768,000 --> Spread over 3 years of contract as below 2021 2022 2023 $2,800,000 $6,517,740 $10,000,000 ($10000000 x 28%; $10000000 x 65.18%; $10000000 x 100%] $0 $2,800,000 $6,517,740 [Ref: Above line] $2,800,000 $3,717,740 $3,482,260 $2,072,000 $3,880,000 $3,280,000 (Given] $728,000 $162,260 $202,260

Billings during the year 2021 2022 $2,160,000 $2,650,000 2021 2022 $2,072,000 $3,880,000 $2,072,000 $5,952,000 $5,328,000 $4,260,000 $7,400,000 $10,212,000 2023 $5,190,000 2023 $4,140,000 $10,092,000 [2022=$2072000+$3880000; 2023=$5952000+$4140000] Costs incurred during the year Cumulative Costs to date Add: Estimated costs to complete as of year-end Estimated total costs $0 $10,092,000 Therefore, % of completion 28.00% 58.28% 100.00% [For 2021: $2072000 / $7400000 = 28%; For 2022: $5952000 / $10212000 = 58.28%; For 2023: $10092000 / $10092000 = 100%] Contract price of this project Less: Cumulative cost to date till 2020 This contract's estimated gross loss when negotiated $10,000,000 ($2160000 + $2650000 + $5190000] $10,092,000 [As calculated above) -$92,000 --> Spread over 3 years of contract as below Contract value completed Less: Revenue recognized already till last year Revenue to recognize (based on % of completion) Less: Cost incurred during the year Gross Profit (Loss) to be recognized 2021 $2,800,000 $0 $2,800,000 $2,072,000 $728,000 2022 $5,828,420 $2,800,000 $3,028,420 $3,880,000 $851,580 2023 $10,000,000 ($10000000 x 28%; $10000000 x 58.28%; $10000000 x 100%] $5,828,420 [Ref: Above line] $4,171,580 $4,140,000 (Given] $31,580