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: 2023 $2,926,000 Cost incurred during the year Estimated costs to complete as of year-end Billings during the year Cash collections during the year 2021 $2,640,000 6,160,000 2,080,000 1,840,000 2022 $2,300,000 2,660,000 2,860,000 2,800,000 5,060,000 5,360,000 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. (Do not round intermediate calculations. Loss amounts should be indicated with a minus sign.) 2021 2022 2023 Revenue Gross profit (loss) $ 360,000

Answer 1

Gross profit recognized (Percentage-of-completion method) : 2021 2022 2023 $10,000,000 $10,000,000 $10,000,000 Contract price (a) Less: Estimated Cost Costs incurred to date Cost incurred in till previous year Total cost incurred till date (b) Estimated costs to complete Estimated Total costs (c) Estimated gross profit (d = a - c) Percentage (%) of completion ('e) (Total Cost incurred to date / Estimated total cost) $2,640,000 $0 $2,640,000 $6,160,000 $8,800,000 $1,200,000 30.00% $2,300,000 $2,926,000 $2,640,000 $4,940,000 $4,940,000 $7,866,000 $2,660,000 $0 $7,600,000 $7,866,000 $2,400,000 $2,134,000 65.00% 100.00% Gross profit earned (d * e) Less: Gross profit earned previous year Gross profit recognized $360,000 $0 $360,000 $1,560,000 $2,134,000 $360,000 $1,560,000 $1,200,000 $574,000 OR Total Revenue recognized (a * e) Less: Revenue recognized in previous year Revenue recognized in current year Less: Cost Incurred Gross Profit recognized 2021 2022 2023 $3,000,000 $6,500,000 $10,000,000 $0 $3,000,000 $6,500,000 $3,000,000 $3,500,000 $3,500,000 $2,640,000 $2,300,000 $2,926,000 $360,000 $1,200,000 $574,000