Question

Required information [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: 2021 2022 2023 Cost incurred during the year $ 2,016,000 $ 2,808,000 $ 2,613,600 Estimated costs to complete as of year-end 5,184,000 2,376,000 0 Billings during the year 2,180,000 2,644,000 5,176,000 Cash collections during the year 1,890,000 2,500,000 5,610,000 Westgate recognizes revenue over time according to percentage of completion.

Required information [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 $ 2,613,600 Cost incurred during the year Estimated costs to complete as of year-end Billings during the year Cash collections during the year 2021 $2,016,000 5,184,000 2,180,000 1,890,000 2022 $ 2,808,000 2,376,000 2,644,000 2,500,000 5, 176,000 5,610,000 Westgate recognizes revenue over time according to percentage of completion. 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). Complete this question by entering your answers in the tabs below.

Answer 1

Before the journal entries we have to calculate the gross profit to be booked during the each year first

Contract value = $10000000

Particulars	2021(in$)	2022(in$)	2023(in$)
Cost incured prior to this year(A)	0	2016000	4824000
Cost incured during the year(B)	2016000	2808000	2613600
Cumulative total cost(C=A+B)	2016000	4824000	7437600
Estimated costs to complete as of year end(D)	5184000	2376000	0
Total Estimated Cost (E= C+D)	7200000	7200000	7437600
% of completion(F=(C/E)*100)	28%	67%	100%
Contract value completed (G=F*10000000)	2800000	6700000	10000000
Total Revenue recognised in prior years (H)	0	2800000	6700000
Cost incured during the year (I)	2016000	2808000	2613600
Gross profit(J=G-H-I)	784000	1092000	686400

To verify that the claculation is correct we calculate the total profit and cross the figure with sum of profits of three years

Total Profit = $10000000-$7437600 = $2562400

Sum of gross profit of three years = $784000+$1092000+$686400 = $2562400

Hence verified

Now lets journalise the entries

There are 4 set of journal entries common to 3 years and a closing entry for year 3

To make it easier lets put it in a table

Accounts Titles	2021($)	2022($)	2023($)
Construction in progress (Dr)	2016000	2808000	2613600
Various accounts (Cr)	2016000	2808000	2613600
(To record the construction cost)
Accounts receivable (Dr)	2180000	2644000	5176000
Billings on construction contracts(Cr)	2180000	2644000	5176000
(To record progres billing)
Cash (Dr)	1890000	2500000	5610000
Accounts Receivable (Cr)	1890000	2500000	5610000
(To Record the cash collection)
Cost of construction(Dr)	2016000	2808000	2613600
Construction in progress(Dr)	784000	1092000	686400
Revenue from contract(Cr)	2800000	3900000	3300000
(To record gross profit)
Billing on construction contract (Dr	No entry	No entry	10000000
Construction in Progress(Cr)			10000000
(To Close the accounts)

Hence solved

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