Question

Can someone please answer this question? I have re-posted this question 3 times and I really need some help with this one. Also, please give an explanation for the correct answer.  Thank you.

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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: 2023 $2,371,600 Cost incurred during the year Estimated costs to complete as of year-end Billings during the year Cash collections during the year 2021 $ 2,079,000 5,621,000 1,700,000 1,500,000 2022 $ 3,465,000 2,156,000 3,844,000 3,300,000 4,456,000 5,200,000 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 e 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 $2,530,000 $3,865,000 $3,230,000 Estimated costs to complete as of year-end 5,730,000 3,230,000 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. Cost incurred during the year Estimated costs to complete as of year-end 2021 $2,530,000 5,730,000 2022 $3,865,000 4,230,000 2023 $4,095,000

Answer 1

Total contract price Particulars 1,00,00,000 2021 2022 2023 79,15,600 Costs incurred to date Estimated cost to be incurred Total cost of the contract Stage of completion (Costs incurred till date/Total contract cost) 20,79,000 56,21,000 77,00,000 27.00% 55,44,000 21,56,000 77,00,000 72.00% As the total contract revenue ($10000000) exceeds the total expected contract costs ($7915600), the contract is expected to be profitable. When the result of any construction contract can be projected, the revenue and costs of such contracts shall be recognised after considering the stage of completion of such contract. The recognition of expected losses shall be done immediately as expenses. 27,00,000 Revenue to be recognised Revenue already recognised in previous years Balance to be recognised during the year Costs incurred during the year Gross profit 27,00,000 +20,79,000 6,21,000 72,00,000 -27,00,000 45,00,000 -34,65,000 10,35,000 1,00,00,000 -72,00,000 28,00,000 -23, 71,600 4,28,400

2021 2022 Balance sheet Current assets Trade receivables (Amount of billing - Amount received) Gross amount due from customers 2,00,000 5,44,000 (1700000- 1500000) (3844000-3300000) 10,00,000 6,56,000 (621000+2079000- (1035000+3465000- 1700000) 3844000) (Profit recognised + Cost incurred till date - Amount of billing) Current liabilities Journal entries 2023 2021 Debit 20,79,000 Credit 2022 Debit 34,65,000 Credit Credit Debit 23,71,600 Construction-in-progress Materials, cash etc. 20,79,000 34,65,000 23,71,600 17,00,000 38,44,000 44,56,000 Accounts receivable Billings 17,00,000 38,44,000 44,56,000 15,00,000 33,00,000 52,00,000 Cash Accounts receivable 15,00,000 33,00,000 52,00,000