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	$	2,975,000			$	3,825,000			$	1,870,000
Estimated costs to complete as of year-end		5,525,000				1,700,000				0
Billings during the year		2,500,000				4,300,000				3,200,000
Cash collections during the year		2,300,000				4,100,000				3,600,000

Assume that Westgate Construction’s contract with Santa Clara County does not qualify for revenue recognition over time.

Required:
1. Calculate the amount of revenue and gross profit (loss) to be recognized in each of the three years.
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).
3. Complete the information required below to prepare a partial balance sheet for 2021 and 2022 showing any items related to the contract.
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.

	2021				2022				2023
Cost incurred during the year	$	2,450,000			$	3,825,000			$	3,250,000
Estimated costs to complete as of year-end		5,650,000				3,150,000				0

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.

	2021				2022				2023
Cost incurred during the year	$	2,450,000			$	3,825,000			$	3,975,000
Estimated costs to complete as of year-end		5,650,000				4,150,000				0

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 2822 Lost incurred during the year 52,975.00 $3,825, $ 1,878,00 Estimated costs to complete as of year-end 5,525,000 1,780, Binis Guring the year 2,500,000 4,380,00 3,200,000 Cash collections during the year 2,300,000 4,100, 3,600,se Assume that Westgate Construction's contract with Santa Clara County does not qualify for revenue recognition over time Required: 1. Calculate the amount of revenue and gross profits to be recognized in each of the three years 2-a. In the joumal below, complete the necessary journal entries for the year 2021 (credit "Various accounts for construction costs Incurred 2-b. In the joumal 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 cos incurred 3. Complete the information required below to prepare a partial balance sheet for 2021 and 2022 showing any item rated to the contract 4. Calcuinto the amount of revenue and gross proft loss) to be recognized in each of the three years on tuming the following costs incurred and costs to complete information 2021 2322 2023 Caut incurred during the year 52,453,1 53,825,000 $3,250,000 Estimated costs to complete as of year-end 5,650,000 3,150,000 5. Calculate the amount of revenue and gross profit is to be recognizes in eech of the three years assuring the following costs cuned and costs to complete information Prev Next

Answer 1

Answer

1	For 2021	Amount ($)
	Revenue recognised =	0
	Gross Profit =	0
	For 2022
	Revenue recognised =	0
	Gross Profit =	0
	For 2023
	Revenue recognised =	$10,000,000
	Gross Profit :-
	Contract Price =	$10,000,000
	Less: Cost incurred =	$8,670,000
	(2975000 + 3825000 + 1870000)
	Gross Profit recognised =	$1,330,000

Note:

As per completed contract method, Gross profit is recognised in the year of completion of contract

But losses will be recognised when the cost incurred & estimated cost exceeds contract price.

2-a	Journal Entries - 2021
Year	Particulars	Debit ($)	Credit ($)
2021	Construction in progress Dr.	2975000
	To Various accounts		2975000
	(To record cost incurred)
	Accounts receivable Dr.	2500000
	To Billings on construction contract		2500000
	(To record billings made during the year)
	Cash A/c Dr.	2300000
	To Accounts receivable		2300000
	(To record cash received from customers)
2-b	Journal Entries - 2022
Year	Particulars	Debit ($)	Credit ($)
2022	Construction in progress Dr.	3825000
	To Various accounts		3825000
	(To record cost incurred)
	Accounts receivable Dr.	4300000
	To Billings on construction contract		4300000
	(To record billings made during the year)
	Cash A/c Dr.	4100000
	To Accounts receivable		4100000
	(To record cash received from customers)
2-c	Journal Entries - 2023
Year	Particulars	Debit ($)	Credit ($)
2023	Construction in progress Dr.	1870000
	To Various accounts		1870000
	(To record cost incurred)
	Accounts receivable Dr.	3200000
	To Billings on construction contract		3200000
	(To record billings made during the year)
	Cash A/c Dr.	3600000
	To Accounts receivable		3600000
	(To record cash received from customers)

Westgate Construction Company
3. Balance Sheet (Partial)
Particulars	2021	2022
Current assets:
Accounts receivable		$200,000		$400,000
Construction in progress	$2,975,000		$6,800,000
Less: Bllings	$2,500,000		$6,800,000
		$475,000		$0
Current Liabilities:
Billings in excess of costs		$0		$0

4	For 2021	Amount ($)
	Revenue recognised =	0
	Gross Profit =	0
	For 2022
	Revenue recognised =	0
	Gross Profit =	0
	For 2023
	Revenue recognised =	$10,000,000
	Gross Profit :-
	Contract Price =	$ 10,000,000
	Less: Cost incurred =	$9,525,000
	(2450000 + 3825000 + 3250000)
	Gross Profit recognised =	$ 475,000
5	For 2021	Amount ($)
	Revenue recognised =	0
	Gross Profit =	0
	For 2022
	Revenue recognised =	0
	Gross Profit =	0
	For 2023
	Revenue recognised =	$10,000,000
	Gross Profit :-
	Contract Price =	$ 10,000,000
	Less: Cost incurred =	$10,250,000
	(2450000 + 3825000 + 3975000)
	Gross Profit recognised =	$ (250,000)