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: 2023 $1,797,400 Cost incurred during the year Estimated costs to complete as of year-end Billings during the year Cash collections during the year 2021 $3,096,000 5,504,000 2,600,000 2,400,000 2022 $3,870,000 1,634,000 4,366,000 4,200,000 3,034,000 3,400,000 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 $2,460,000 $3,830,000 $3,260,000 Estimated costs to complete as of 5,660,000 3,160,000 year-end 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.

Answer 1

1	Percentage of completion=Cost incurred during the year/Total estimated cost
	Revenue to be recognized=Contract price*Percenatge of completion
	Gross profit/(loss) to be recognized=Estimated gross profit/(Loss) *percentage of completion
	Estimated gross profit/(loss)=Contract price-Total estimated costs
				2021	2022	2023
	a) Contract price			10000000	10000000	10000000
	b) Actual cost to date			3096000	6966000	8763400
					(3096000+3870000)	(6966000+1797400)
	c) Estimated costs to complete			5504000	1634000	0
	d) Total estimated costs (b)+©			8600000	8600000	8763400
	e) Estimated gross profit/(loss) (a)-(d)			1400000	1400000	1236600
	f) Percentage of completion (b)/(d)			36.00%	81.00%	100.00%
	g) Revenue to be recognized (a)*(f)			3600000	8100000	10000000
	Less: Revenue already recognized			0	3600000	8100000
						(3600000+4500000)
	Revenue to be recognized in the current year			3600000	4500000	1900000
	h) Gross profit/(loss) to be recognized €*(f)			504000	1134000	1236600
	Less:Gross profit/(loss) already recognized			0	504000	1134000
						(504000+630000)
	Gross profit/(loss) to be recognized in the current year			504000	630000	102600
	Journal entries:
2-a.	Date	Account Titles and Explanation			Debit	Credit
	2021	Construction in progress			3096000
		Various accounts				3096000
		(Construction cost incurred)
		Accounts receivable			2600000
		Billings on construction contract				2600000
		(Billings during the year)
		Cash			2400000
		Accounts receivable				2400000
		(Cash collections during the year)
		Construction in progress			504000
		Cost of construction			3096000
		Revenue fronm long-term contracts				3600000
		(Gross profit and revenue recognized)