Question

In 2024, 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 2026. Information related to the contract is as follows:

Year Cost Incurred Estimated Costs to Complete Billings Cash Collections
2024 $2,400,000 $5,600,000 $2,000,000 $1,800,000
2025 $3,600,000 $2,000,000 $4,000,000 $3,600,000
2026 $2,200,000 $0 $4,000,000 $4,600,000

Westgate recognizes revenue over time according to the percentage of completion. What is the revenue recognized by Westgate in 2024?
1) $2,400,000
2) $5,600,000
3) $2,000,000
4) $1,800,000

Answer 1

The revenue recognized by Westgate Construction Company in 2024 using the percentage of completion method is calculated to be 30% of the total contract value of $10,000,000, which equals $3,000,000. However, this figure is not listed among the provided options, indicating a possible question error.

Step-by-step explanation:

The question requires calculating the revenue recognized by Westgate Construction Company in 2024 using the percentage of completion method. To determine this, we need to calculate the percentage of the project completed in 2024 and apply that percentage to the total contract value.

The total cost to complete the project initially is the sum of the cost incurred in 2024 and the estimated costs to complete at the end of 2024, which equals $2,400,000 + $5,600,000 = $8,000,000. The percentage of completion in 2024 is then the cost incurred in 2024 ($2,400,000) divided by the total initial cost ($8,000,000), resulting in 30% (0.30) completion.

Applying this percentage to the total contract value of $10,000,000, we find that the revenue recognized in 2024 is:
30% of $10,000,000 = $3,000,000.