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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 | $ | 2,542,000 | $ | 3,772,000 | $ | 2,074,600 | |||
| Estimated costs to complete as of year-end | 5,658,000 | 1,886,000 | 0 | ||||||
| Billings during the year | 2,020,000 | 4,294,000 | 3,686,000 | ||||||
| Cash collections during the year | 1,810,000 | 3,800,000 | 4,390,000 | ||||||
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.)
Working
| 2021 | 2022 | 2023 | |
| Accumulated cost at beginning | 0 | 2542000 | 6314000 |
| Add: Cost incurred during the period | 2542000 | 3772000 | 2074600 |
| Total cost incurred till date [A] | 2542000 | 6314000 | 8388600 |
| Estimated cost to be incurred | 5658000 | 1886000 | 0 |
| Total cost to complete [B] | 8200000 | 8200000 | 8388600 |
| % of work completed [A/B] | .31 or 31% | .77 or 77% | 100% |
a)
| 2021 | 2022 | 2023 | |
| Revenue to be recognized till date {Total contract revenue*% of work completed} | 10000000*.31=3100000 | 10000000*.77= 7700000 | 10000000*100%=10000000 |
| Less:Revenue recognized in prior year | 0 | 3100000 | 7700000 |
| Revenue to be recognized in current year | 3100000 | 4600000 | 2300000 |
b)
| 2021 | 2022 | 2023 | |
| Revenue recognized | 3100000 | 4600000 | 2300000 |
| less:cost incurred during the year | 2542000 | 3772000 | 2074600 |
| Gross profit | 558000 | 828000 | 225400 |
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