Question

In 2021, the Westgate Construction Company entered into a contract to construct a road for Santa...

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