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 | $ | 2,490,000 | $ | 3,984,000 | $ | 2,008,600 | |||
| Estimated costs to complete as of year-end | 5,810,000 | 1,826,000 | 0 | ||||||
| Billings during the year | 2,030,000 | 4,444,000 | 3,526,000 | ||||||
| Cash collections during the year | 1,815,000 | 3,900,000 | 4,285,000 | ||||||
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.)
Solution:
| Computation of % of completion, revenue recognition and Gross Profit - Westgate Construction Company | ||||||||
| Year | Actual cost incurred (A) | Total cost incurred till date (B) | Total estimated Cost ( C ) | % of completion (D) (B/C) |
Contract Price (E) |
Total Revenue to be recoganized (F) (E * D) | Revenue for current period (G) | Gross Profit (H) |
| 2021 | $24,90,000 | $24,90,000 | $83,00,000 | 30.00% | $1,00,00,000 | $30,00,000 | $30,00,000 | $5,10,000 |
| 2022 | $39,84,000 | $64,74,000 | $83,00,000 | 78.00% | $1,00,00,000 | $78,00,000 | $48,00,000 | $8,16,000 |
| 2023 | $20,08,600 | $84,82,600 | $84,82,600 | 100.00% | $1,00,00,000 | $1,00,00,000 | $22,00,000 | $1,91,400 |
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