Question

Required information Problem 6-10 (Algo) Long-term contract; revenue recognition over time (LO6-8, 6-9) [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: 2023 $2,008,600 Cost incurred during the year Estimated costs to complete as of year-end Billings during the year Cash collections during the year 2021 $2,490,000 5,810,000 2,030,000 1,815,000 2022 $3,984,000 1,826,000 4,444,000 3,900,000 3,526,000 4,285,000 Westgate recognizes revenue over time according to percentage of completion. Problem 6-10 (Algo) Part 2 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

Solution:

Computation of revenue to be recognised and profit or (loss) to be recognised:

(Amounts in $)

Particulars	2021	2022	2023
Cost incurred during the year	24,90,000	39,84,000	20,08,600
Cost incurred already (A)	24,90,000	64,74,000	84,82,600
Estimated cost	58,10,000	18,26,000	0
Estimated Total Cost (including incurred cost) (B)	83,00,000	83,00,000	84,82,600
Percentage of Completion (%) (A/B)	30	78	100
Contract revenue to be recognised (total revenue x % of completion)	30,00,000	78,00,000	100,00,000
Less: Cost incurred	(24,90,000)	(64,74,000)	(84,82,600)
Total Profit or (Loss)	5,10,000	13,26,000	15,17,400
Less: Profit or (Loss) already recognised	0	(5,10,000)	(13,26,000)
Profit or (Loss) to be recognised	5,10,000	8,16,000	1,91,400

Journal Entries:

(Amounts in $)

Date	Particulars	Debit	Credit
2021	(1) Construction Costs: Construction in Progress A/c Dr.                 To Cash A/c (Being Construction cost incurred during the year)	24,90,000	24,90,000
2021	(2) Progress Billings: Santa Clara County A/c                               Dr. Unbilled Contract Receivables (2021) A/c   Dr.                 To Contract Revenue A/c (Being progress billing of contract has been made)	20,30,000 9,70,000	30,00,000
2021	(3) Cash Collection: Cash A/c       Dr.           To Santa Clara County A/c (Being cash collected from the client)	18,15,000	18,15,000
2021	(4) Profit or (Loss) during the year: No Entry needed because it is being already entered by the above entries of revenue and cost incurred.	N.A.	N.A.

Date	Particulars	Debit	Credit
2022	(1) Construction Costs: Construction in Progress A/c Dr.                 To Cash A/c (Being Construction cost incurred during the year)	39,84,000	39,84,000
2022	(2) Progress Billings: Santa Clara County A/c                               Dr. Unbilled Contract Receivables (2022) A/c   Dr.                 To Contract Revenue A/c                 To Unbilled Contract rec. (2021) A/c (Being progress billing of contract has been made)	44,44,000 13,26,000	48,00,000 9,70,000
2022	(3) Cash Collection: Cash A/c       Dr.           To Santa Clara County A/c (Being cash collected from the client)	39,00,000	39,00,000
2022	(4) Profit or (Loss) during the year: No Entry needed because it is being already entered by the above entries of revenue and cost incurred.	N.A.	N.A.

Date	Particulars	Debit	Credit
2023	(1) Construction Costs: Construction in Progress A/c Dr.                 To Cash A/c (Being Construction cost incurred during the year)	20,08,600	20,08,600
2023	(2) Progress Billings: Santa Clara County A/c                               Dr.                 To Contract Revenue A/c                To Unbilled Contract rec. (2022) A/c (Being progress billing of contract has been made)	35,26,000	22,00,000 13,26,000
2023	(3) Cash Collection: Cash A/c       Dr.           To Santa Clara County A/c (Being cash collected from the client)	42,85,000	42,85,000
2023	(4) Profit or (Loss) during the year: No Entry needed because it is being already entered by the above entries of revenue and cost incurred.	N.A.	N.A.