Question

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 $ 2,291,000 $ 3,555,000 $ 2,259,400 Estimated costs to complete as of year-end 5,609,000 2,054,000 0 Billings during the year 1,900,000 3,946,000 4,154,000 Cash collections during the year 1,700,000 3,500,000 4,800,000 Assume that Westgate Construction’s contract with Santa Clara County does not qualify for revenue recognition over time. Required: 1. Calculate the amount of revenue and gross profit (loss) to be recognized in each of the three years. 2-a. In the journal below, complete the necessary journal entries for the year 2021 (credit "Various accounts" for construction costs incurred). 2-b. In the journal below, complete the necessary journal entries for the year 2022 (credit "Various accounts" for construction costs incurred). 2-c. In the journal below, complete the necessary journal entries for the year 2023 (credit "Various accounts" for construction costs incurred). 3. Complete the information required below to prepare a partial balance sheet for 2021 and 2022 showing any items related to the contract. 4. Calculate the amount of revenue and gross profit (loss) to be recognized in each of the three years assuming the following costs incurred and costs to complete information. 2021 2022 2023 Cost incurred during the year $ 2,510,000 $ 3,855,000 $ 3,210,000 Estimated costs to complete as of year-end 5,710,000 3,210,000 0 5. Calculate the amount of revenue and gross profit (loss) to be recognized in each of the three years assuming the following costs incurred and costs to complete information. 2021 2022 2023 Cost incurred during the year $ 2,510,000 $ 3,855,000 $ 4,065,000 Estimated costs to complete as of year-end 5,710,000 4,210,000 0

Answer 1

1	Under completed contract method,Gross profit is recognized in the year of completion of contract
	However,losses will be recognized when the cost incurred and estimated cost exceeds contract price,
	For 2021
	Revenue recognized=0.
	Gross profit recognized=0
	For 2022
	Revenue recognized=0.
	Gross profit recognized=0
	For 2023
	Revenue recognized=$ 100000000
	Gross profit recognized:
						$
	Contract price					10000000
	Less: Cost incurred		(2291000+3555000+2259400)			8105400
	Gross profit recognized					1894600
2a.	No.	Year	General journal				Debit	Credit
	1	2021	Construction in progress				2291000
			Various accounts					2291000
			(Cost incurred)
	2	2021	Accounts receivable				1900000
			Billings on construction contract					1900000
			(Billings made during the year)
	3	2021	Cash				1700000
			Accounts receivable					1700000
			(Cash received from customers)
2b.	No.	Year	General journal				Debit	Credit
	1	2022	Construction in progress				3555000
			Various accounts					3555000
			(Cost incurred)
	2	2022	Accounts receivable				3946000
			Billings on construction contract					3946000
			(Billings made during the year)
	3	2022	Cash				3500000
			Accounts receivable					3500000
			(Cash received from customers)
2c.	No.	Year	General journal				Debit	Credit
	1	2023	Construction in progress				2259400
			Various accounts					2259400
			(Cost incurred)
	2	2023	Accounts receivable				4154000
			Billings on construction contract					4154000
			(Billings made during the year)
	3	2023	Cash				4800000
			Accounts receivable					4800000
			(Cash received from customers)
	4	2023	Billings on construction contract				10000000
			Construction contract revenue					10000000
			(Revenue recognized)
	5	2023	Cost of construction		(2291000+3555000+2259400)		8105400
			Construction in progress					8105400
			(Contract cost recognized)
3			Balance sheet
			At December 31,2021
				$	$
	Current asset:
	Accounts receivable		(1900000-1700000)		200000
	Cost in excess of billings
	Cost incurred			2291000
	Less: billings			1900000	391000
	Current liabilities:				0