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 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 $2,926,000 2,660,000 2,860,0005 ,060,000 2,800,000 5,360,000 Westgate recognizes revenue over time according to percentage of completion. Problem 6-10 (Algo) Part 5 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. (Do not round intermediate calculations and round your final answers to the nearest whole dollar amount. Loss amounts should be indicated with a minus sign.) 2021 $2,640,000 6,160,000 Costs incurred during the year Estimated costs to complete as of year-end 2022 $3,840,000 4,180,000 2023 $4,020,000 2021 2022 2023 Revenue Gross profit (loss)

Answer 1

Percentage Completion Method
Particulars	2021	2022	2023
Cost incurred till previous year	0	2640000	6480000
Add:Cost incurred during the year	2640000	3840000	4020000
Total cost incurred till date	2640000	6480000	10500000
Add: Estimated cost to be incurred	6160000	4180000	0
Total estimated cost to be incurred	8800000	10660000	10500000
Percentage of completion (A)	30%	60.79%	100%
(Cost incurred till date /Total estimated cost )
Total revenue (B)	10000000	10000000	10000000
Total revenue recognized (A *B)	3000000	6078799	10000000
Less:Revenue recognized in previous year	0	3000000	6078799
Revenue recognized in current year	3000000	3078799	3921201

Calculation of amount of Revenue and Gross Profit to be recognized in each of the years:

Particulars	2021	2022	2023
Revenue	3000000	3078799	3921201
Less:Cost incurred	2640000	3840000	4020000
Gross profit	360000	-761201	-98799