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	$	3,471,000			$	4,005,000			$	1,566,400
Estimated costs to complete as of year-end		5,429,000				1,424,000				0
Billings during the year		2,900,000				4,576,000				2,524,000
Cash collections during the year		2,700,000				4,500,000				2,800,000

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	$	2,490,000			$	3,845,000			$	3,290,000
Estimated costs to complete as of year-end		5,690,000				3,190,000				0

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				2022				2023
Cost incurred during the year	$	2,490,000			$	3,845,000			$	4,035,000
Estimated costs to complete as of year-end		5,690,000				4,190,000				0

Answer 1

Ans1] Amount of revenue and gross profit tobe recognised each year is as follows ---

Particulars	2021	2022	2023
Cash collection during the year	2700000	4500000	2800000
Revenue recognised each year *[A]	0	0	10000000
Cost incurred each year	3471000	4005000	1566400
Total Cost[B]			9042400
Gross Profit[+]/Loss[-]* [A-B]	0	0	958000

As it is given that the contract does not qualify for revenue recognition over time , the cash collections during the year were not rcognised as revenue for the year.In the year 2023 revenue and costs are recognised as the contract obligation is satisfied.

Ans 2 a],b],c]

Date	Particulars		Debit $	Credit$
2021 a	Bank A/c To Deferred Revenue		2700000	2700000
	Prepaid Conntract Cost To Various Accounts		3471000	3471000
2022 b	Bank A/c To Deferred Revenue		4500000	4500000
	Prepaid Conntract Cost To Various Accounts		4005000	4005000
2023 c	Bank A/c To Deferred Revenue		2800000	2800000
	Prepaid Contract Cost To Various A/cs		1566400	1566400
	Billing To Excess Billig		958000	958000

Ans 3

In partial balance sheet for 2021 &2022 we have to show cash receipts received during th e year and excess billing if any.

Liabilities	2021	2022
Deferred Revenue	2700000	4500000
Excess Billing	0	0

Ans 4

Particulars	2021	2022	2023
Revenue[a]			10000000
Cost icurred each year	2490000	3845000	3290000
Cost recognised[b]	0	0	9625000
Gross Profit[+]Loss[-][a-b]			375000

Ans 5

Particulars	2021	2022	2023
Revenue[a]			10000000
Cost icurred each year	2490000	3845000	4035000
Cost recognised[b]	0	0	10370000
Gross Profit[+]Loss[-][a-b]			-370000