Question

[The following information applies to the questions displayed below.]

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 $ 2,580,000 $ 4,042,000 $ 2,175,800 Estimated costs to complete as of year-end 6,020,000 1,978,000 0 Billings during the year 2,060,000 4,562,000 3,378,000 Cash collections during the year 1,830,000 4,200,000 3,970,000 Westgate recognizes revenue over time according to percentage of completion.

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).

Answer 1

Please give positive ratings so I can keep answering. It would help me a lot. Please comment if you have any query. Thanks!

Westgate Construction Company
Ans to 1 and 2	Calculation of Gross Profit
Particulars	2021	2022	2023
Contract Price	10,000,000	10,000,000	10,000,000	A
Cost Incurred during the year	2,580,000	4,042,000	2,175,800	C
Cost Incurred to date	2,580,000	6,622,000	8,797,800
(Cost incurred to date of the present year less Cost incurred to date of the previous year)
Estimated cost to complete	6,020,000	1,978,000	-	D
Estimated total cost	8,600,000	8,600,000	8,797,800	E=C+B
(Cost Incurred to date+ Estimated cost to complete )
Percentage complete	30.00%	77.00%	100.00%	F=B/E
(Cost Incurred to date/Estimated total cost)
Revenue to be recognized	3,000,000	4,700,000	2,300,000	G
(Contract Price*Percentage complete)- revenue previously recognized
Year 2021: 30% completed. Revenue recognized = 30% x $ 10,000,000 = $ 3,000,000.
Year 2022: 77% completed. Revenue recognized = 77% x $ 10,000,000 – $ 3,000,000 (previously recognized) = $ 4,700,000.
Year 2023: 100% completed. Revenue recognized = 100% x $ 10,000,000 – $ 3,000,000- $ 4,770,000 (previously recognized) = $ 2,300,000.
Gross Profit/(Loss)	420,000	658,000	124,200	H=G-C
Billings during the year	2,060,000.00	4,562,000.00	3,378,000.00
Cash collections during the year	1,830,000.00	4,200,000.00	3,970,000.00

		2021		2022		2023
	Journal Entries	Debit $	Credit $		Debit $	Credit $		Debit $	Credit $
Costs Incurred	CIP (Work-in-progress)	2,580,000			4,042,000			2,175,800
	Cash		2,580,000			4,042,000			2,175,800
Billing	Accounts Receivable	2,060,000			4,562,000			3,378,000
	Billing on CIP		2,060,000			4,562,000			3,378,000
Receiving Payments	Cash	1,830,000			4,200,000			3,970,000
	Accounts Receivable		1,830,000			4,200,000			3,970,000
Period end adjustments for Revenue	Construction Expense	2,580,000			4,042,000			2,175,800
(Gross Profit entry)	CIP (Work-in-progress)	420,000			658,000			124,200
	Construction Revenue		3,000,000			4,700,000			2,300,000
Completing the Project	Billing on CIP							10,000,000
	CIP (Work-in-progress)								10,000,000