Question

Problem 6-11 (Algo) Long-term contract; revenue recognition upon completion (LO6-9] 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: Cost incurred during the year Estimated costs to complete as of year-end Billings during the year Cash collections during the year 2021 $1,976,000 5, 624,000 1,600,000 1,400,000 2022 $3,420,000 2,204,000 3,796,000 3,200,000 2023 $2,424, 400 0 4,604,000 5,400,000 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 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 $2,540,000 $3,870,000 $3,240,000 Estimated costs to complete as of year-end 5,740,000 3,240,000 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. 2021 $2,540,000 5,740,000 Cost incurred during the year Estimated costs to complete as of year-end 2022 $3,870,000 4,240,000 2023 $4,110,000 Complete this question by entering your answers in the tabs below. Reg 1 Req 2A Req ZA Req 2B Req 2B Req 2c Reqzc Req3 Req 4 Rega Reg 5 Calculate the amount of revenue and gross nrofit (loss) to be recognized in each of the three years (leave no cells blank.

Answer 1

	Requirement 1		Amount in $
	Particulars	2021	2022	2023
	Cost incurred in till previous year	0	1976000	5396000
ADD	Cost incurred during the Year	1976000	3420000	2424400
	Total Cost Incurred till date	1976000	5396000	7820400
ADD	Estimated Cost to be incurred	5624000	2204000	0
	Total estimated cost to be incurred	7600000	7600000	7820400
	Percentage of Completion (A)	26%	71%	100%
	(Cost incurred till date / Total Estimated Cost)
	Total Revenue (B)	10000000	10000000	10000000
	Total Revenue Recognized (A* B)	2600000	7100000	10000000
LESS	Revenue Recognized in Previous Year	0	2600000	7100000
	Revenue Recognized in Current Year	2600000	4500000	2900000
	Particulars	2021	2022	2023
	Revenue	2600000	4500000	2900000
LESS	Cost Incurred	1976000	3420000	2424400
	Gross Profit	624000	1080000	475600
	Requirement 2A
Date	Particulars	Debit	Credit
2021	Construction in Progress	$1,976,000
	Various Accounts		$1,976,000
2021	Accounts Receivable	$1,600,000
	Billings on Construction Contract		$1,600,000
2021	Cash	$1,400,000
	Accounts Receivable		$1,400,000
	Requirement 2B
Date	Particulars	Debit	Credit
2022	Construction in Progress	$3,420,000
	Various Accounts		$3,420,000
2022	Accounts Receivable	$3,796,000
	Billings on Construction Contract		$3,796,000
2022	Cash	$3,200,000
	Accounts Receivable		$3,200,000
	Requirement 2C
Date	Particulars	Debit	Credit
2023	Construction in Progress	$2,424,400
	Various Accounts		$2,424,400
2023	Accounts Receivable	$4,604,000
	Billings on Construction Contract		$4,604,000
2023	Cash	$5,400,000
	Accounts Receivable		$5,400,000
2023	Cost of Construction	$7,820,400
	Construction in Progress	$2,179,600
	Revenue from Long Term Contracts		$10,000,000
	Requirement 3
	Balance Sheet (Partial)	2021		2022
	Current Assets:
	Accounts Receivable		$200,000		$596,000
	Construction in Progress	$1,976,000		$5,396,000
	Less: Billings	$1,600,000		$5,396,000
	Costs in excess of Billings		$376,000		$0
	Requirement 4		Amount in $
	Particulars	2021	2022	2023
	Cost incurred in till previous year	0	2540000	6410000
ADD	Cost incurred during the Year	2540000	3870000	3240000
	Total Cost Incurred till date	2540000	6410000	9650000
ADD	Estimated Cost to be incurred	5740000	3240000	0
	Total estimated cost to be incurred	8280000	9650000	9650000
	Percentage of Completion (A)	31%	66%	100%
	(Cost incurred till date / Total Estimated Cost)
	Total Revenue (B)	10000000	10000000	10000000
	Total Revenue Recognized (A* B)	3067632.85	6642487.047	10000000
LESS	Revenue Recognized in Previous Year	0	3067632.85	6642487.05
	Revenue Recognized in Current Year	3067632.85	3574854.196	3357512.95
	Particulars	2021	2022	2023
	Revenue	3067632.85	3574854.196	3357512.95
LESS	Cost Incurred	2540000	3870000	3240000
	Gross Profit	527632.85	-295145.804	117512.953
	Requirement 5		Amount in $
	Particulars	2021	2022	2023
	Cost incurred in till previous year	0	2540000	6410000
ADD	Cost incurred during the Year	2540000	3870000	4110000
	Total Cost Incurred till date	2540000	6410000	10520000
ADD	Estimated Cost to be incurred	5740000	4240000	0
	Total estimated cost to be incurred	8280000	10650000	10520000
	Percentage of Completion (A)	31%	60%	100%
	(Cost incurred till date / Total Estimated Cost)
	Total Revenue (B)	10000000	10000000	10000000
	Total Revenue Recognized (A* B)	3067632.85	6018779.343	10000000
LESS	Revenue Recognized in Previous Year	0	3067632.85	6018779.34
	Revenue Recognized in Current Year	3067632.85	2951146.492	3981220.66
	Particulars	2021	2022	2023
	Revenue	3067632.85	2951146.492	3981220.66
LESS	Cost Incurred	2540000	3870000	4110000
	Gross Profit	527632.85	-918853.508	-128779.34