Question

roblem 6-10 (Algo) Long-term contract; revenue recognition over time [LO6-8, 6-9]

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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	$	2,550,000		$	4,250,000		$	1,870,000
Estimated costs to complete as of year-end		5,950,000			1,700,000			0
Billings during the year		2,050,000			4,750,000			3,200,000
Cash collections during the year		1,825,000			4,100,000			4,075,000

Westgate recognizes revenue over time according to percentage of completion.

Problem 6-10 (Algo) Part 1

Required:
1. Calculate the amount of revenue and gross profit (loss) to be recognized in each of the three years.

Answer 1

	Contract price	$10,000,000
		2021	2022	2023
a)	Cost incurred during the year	$2,550,000	$4,250,000	$1,870,000
b)	Cost incurred to date	$2,550,000	$6,800,000	$8,670,000
c)	Estimated costs to complete	$5,950,000	$1,700,000	$0
d)	Total cost (b)+(c )	$8,500,000	$8,500,000	$8,670,000
	% of completion (b)/(d)	30%	80%	100%
	Revenue recognised	$3,000,000	$8,000,000	$10,000,000
		(10000000*0.3)	(10000000*0.8)	(10000000*1)
	Cost incurrred during the year	$2,550,000	$4,250,000	$1,870,000
	Gross profit	$450,000	$3,750,000	$8,130,000

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