Question

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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.

3. Complete the information required below to prepare a partial balance sheet for 2021 and 2022 showing any items related to the contract. (Do not round intermediate calculations.)

Answer 1

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Westgate Construction Company
Ans to 1 and 2	Calculation of Gross Profit
Particulars	2021	2022	2023
Contract Price	10,000,000	10,000,000	10,000,000	A
Cost Incurred during the year	2,580,000	4,042,000	2,175,800	C
Cost Incurred to date	2,580,000	6,622,000	8,797,800
(Cost incurred to date of the present year less Cost incurred to date of the previous year)
Estimated cost to complete	6,020,000	1,978,000	-	D
Estimated total cost	8,600,000	8,600,000	8,797,800	E=C+B
(Cost Incurred to date+ Estimated cost to complete )
Percentage complete	30.00%	77.00%	100.00%	F=B/E
(Cost Incurred to date/Estimated total cost)
Revenue to be recognized	3,000,000	4,700,000	2,300,000	G
(Contract Price*Percentage complete)- revenue previously recognized
Year 2021: 30% completed. Revenue recognized = 30% x $ 10,000,000 = $ 3,000,000.
Year 2022: 77% completed. Revenue recognized = 77% x $ 10,000,000 – $ 3,000,000 (previously recognized) = $ 4,700,000.
Year 2023: 100% completed. Revenue recognized = 100% x $ 10,000,000 – $ 3,000,000- $ 4,770,000 (previously recognized) = $ 2,300,000.
Gross Profit/(Loss)	420,000	658,000	124,200	H=G-C
Billings during the year	2,060,000.00	4,562,000.00	3,378,000.00
Cash collections during the year	1,830,000.00	4,200,000.00	3,970,000.00

Workings for Balance Sheet
CIP (Work-in-progress)
Account	Amount ($)
Cash	2,580,000
Gross Profit	420,000
Balance at the end of 2021	3,000,000
Cash	4,042,000
Gross Profit	658,000
Balance at the end of 2022	7,700,000
Billing on CIP
Account	Amount ($)
Accounts Receivable	2,060,000
Balance at the end of 2021	2,060,000
Accounts Receivable	4,562,000
Balance at the end of 2022	6,622,000

Balance Sheet (Partial)	2021	2022
Current Assets:
CIP (Work-in-progress)	3,000,000	7,700,000
	3,000,000	7,700,000
Current Liabilities:
Billing on CIP	2,060,000.00	4,562,000.00
	2,060,000.00	4,562,000.00