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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	$	2,490,000		$	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.

Answer 1

Percentage of Completion Method:

Revenue to be recognized = Costs incurred to date / Total estimated costs * Contract Price - Revenue that is recognized previously

2021:

Revenue to be recognized in 2021 = $2,490,000/[$5,810,000 + $1,826,000] * $10,000,000 - $0

= $2,490,000/$7,636,000 * $10,000,000 - $0

= $3,260,870

Therefore, revenue recognized in 2021 under percentage of completion method is $3,260,870.

2022:

Revenue to be recognized in 2022 = ($2,490,000 + $3,984,000/$7,636,000 * $10,000,000 - $3,260,870

= $6,474,000 / $7,636,000 * $10,000,000 - $3,260,870

= $5,217,391

Therefore, revenue recognized in 2022 under percentage of completion method is $5,217,391.

2023:

Revenue to be recognized in 2023 = $10,000,000 - $3,260,870 - $5,217,391

= $1,521,739

Therefore, revenue recognized in 2023 under percentage of completion method is $1,521,739.