Question

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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	$	2,072,000		$	2,738,000		$	2,849,000
Estimated costs to complete as of year-end		5,328,000			2,590,000			0
Billings during the year		2,160,000			2,650,000			5,190,000
Cash collections during the year		1,880,000			2,700,000			5,420,000

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.)

Answer 1

	2021	2022	2023
Cost incurred during the year	2,072,000	2,738,000	2,849,000
Cost incurred till date (a)	2,072,000	4,810,000	7,659,000
Estimated costs to complete as of yearend   (b)	5,328,000	2,590,000	0
Total cost (c=a + b)	7,400,000	7,400,000	7,659,000
% of completion (a/c)	28%	65%	100%
Revenue recognized till date (d)	2,800,000 (10,000,000*28%)	6,500,000 (10,000,000*65%)	10,000,000 (10,000,000*100%)
Revenue recognized in earlier period (e)	0	2,800,000	6,500,000
Revenue recognized for the current period (f=d-e)	2,800,000	3,700,000	3,500,000
Gross profit	728,000 (2,800,000-2,072,000)	962,000 (3,700,000-2,738,000)	651,000 (3,500,000-2,849,000)

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