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: 2021 2022 2023 Cost incurred during the year $ 1,584,000 $ 3,240,000 $ 2,613,600 Estimated costs to complete as of year-end 5,616,000 2,376,000 0 Billings during the year 1,200,000 3,624,000 5,176,000 Cash collections during the year 1,000,000 2,800,000 6,200,000 Assume that Westgate Construction’s contract with Santa Clara County does not qualify for revenue recognition over time.

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 $1,584,000 5,616,000 1,200,000 1,000,000 2022 $3,240,000 2,376,000 3,624,000 2,800,000 2023 $ 2,613,600 0 5, 176,000 6,200,000 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 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 $ 2,580,000 $3,890,000 $3,280,000 Estimated costs to complete as of year-end 5,780,000 3,280,000 0

Answer 1

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Westgate Construction Company
Ans to 1
Particulars	2021	2022	2023	Note
Contract Price	10,000,000	10,000,000	10,000,000	A
Cost Incurred during the year	1,584,000	3,240,000	2,613,600	C
Cost Incurred to date	1,584,000	4,824,000	7,437,600

(Cost incurred to date of the present year less Cost incurred to date of the previous year)

Estimated cost to complete	5,616,000	2,376,000	-	D
Estimated total cost	7,200,000	7,200,000	7,437,600	E=C+B

(Cost Incurred to date+ Estimated cost to complete )

Percentage complete

22.00%

67.00%

100.00%

F=B/E

(Cost Incurred to date/Estimated total cost)

Revenue to be recognized

2,200,000

4,500,000

3,300,000

G

(Contract Price*Percentage complete)- revenue previously recognized

Year 2021: 22% completed. Revenue recognized = 22% x $ 10,000,000 = $ 2,200,000.

Year 2022: 67% completed. Revenue recognized = 67% x $ 10,000,000 – $ 2,200,000 (previously recognized) = $ 4,500,000.

Year 2023: 100% completed. Revenue recognized = 100% x $ 10,000,000 – $ 2,200,000- $ 4,500,000 (previously recognized) = $ 3,300,000.

Gross Profit/(Loss)	616,000	1,260,000	686,400	H=G-C
Billings during the year	1,200,000.00	3,624,000.00	5,176,000.00
Cash collections during the year	1,000,000.00	2,800,000.00	6,200,000.00

Ans to 2 a, b and c		2021		2022		2023
	Journal Entries	Debit $	Credit $		Debit $	Credit $		Debit $	Credit $
Costs Incurred	CIP (Work-in-progress)	1,584,000			3,240,000			2,613,600
	Cash		1,584,000			3,240,000			2,613,600
Billing	Accounts Receivable	1,200,000			3,624,000			5,176,000
	Billing on CIP		1,200,000			3,624,000			5,176,000
Receiving Payments	Cash	1,000,000			2,800,000			6,200,000
	Accounts Receivable		1,000,000			2,800,000			6,200,000
Period end adjustments for Revenue	Construction Expense	1,584,000			3,240,000			2,613,600
(Gross Profit entry)	CIP (Work-in-progress)	616,000			1,260,000			686,400
	Construction Revenue		2,200,000			4,500,000			3,300,000
Completing the Project	Billing on CIP							10,000,000
	CIP (Work-in-progress)								10,000,000

Workings for Balance Sheet
CIP (Work-in-progress)
Account	Amount ($)
Cash	1,584,000.00
Gross Profit	616,000.00
Balance at the end of 2021	2,200,000.00
Cash	3,240,000.00
Gross Profit	1,260,000.00
Balance at the end of 2022	6,700,000.00
Billing on CIP
Account	Amount ($)
Accounts Receivable	1,200,000.00
Balance at the end of 2021	1,200,000.00
Accounts Receivable	3,624,000.00
Balance at the end of 2022	4,824,000.00

Ans to 3
Balance Sheet (Partial)	2021	2022
Current Assets:
CIP (Work-in-progress)	2,200,000.00	6,700,000.00
	2,200,000	6,700,000
Current Liabilities:
Add a comment Know the answer? Add Answer to: In 2021, the Westgate Construction Company entered into a contract to construct a road for Santa... Your Answer: Post as a guest Your Name: What's your source? Earn Coins Coins can be redeemed for fabulous gifts. Log In Sign Up Post as anonymous Post Your Answer Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free. Similar Homework Help Questions Help In 2021, the Westgate Construction Company entered into a contract to construct a road for... Help 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. 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