Question

Required information

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In 2024, the Westgate Construction Company entered into a contract to construct a road for Santa Clara County fa
$10,000,000. The road was completed in 2026. 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.
Westgate recognizes revenue over time according to percentage of completion.
Revenue
Gross profit (loss)
Answer is complete but not entirely correct.
2025
2026
4,600,000 $ 2,300,000
801,000 $
252,400
Required:
1. Calculate the amount of revenue and gross profit (loss) to be recognized in each of the three years.
Note: Do not round intermediate calculations. Loss amounts should be indicated with a minus sign.
$
$
2024
$ 2,542,000
5,658,000
2,020,000
1,810,000
2024
3,100,000
2025
2026
$ 3,772,000 $ 2,074,600
1,886,000
$
558,000 S
4,294,000
3,800,000
0
3,686,000
4,390,000

Answer 1

The corrected calculation of revenue and gross profit (loss) for each year:

Year Cost incurred during the year Estimated costs to complete as of year-end Total estimated costs Percentage of completion Revenue Gross profit (loss)

2024 $2,542,000 $5,658,000 $8,200,000 31% $2,542,000 -$458,000

2025 $4,600,000 $1,886,000 $6,486,000 89% $5,760,000 $1,160,000

2026 $2,300,000 $0 $2,300,000 100% $2,300,000 $225,400

Explanation of changes:

Total estimated costs: We had originally used the wrong estimated costs to complete for 2025. The correct amount is $1,886,000, not $801,000.

Percentage of completion: We corrected the percentage of completion for each year based on the updated total estimated costs.

Revenue: We recalculated the revenue for each year using the updated percentage of completion.

Gross profit (loss): We recalculated the gross profit (loss) for each year by subtracting the cost incurred during the year from the revenue.