23.2k views
1 vote
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 1,400,000 3,150,000 2,695,000
Estimated costs to complete as of year-end 5,600,000 2,450,000 0
Billings during the year 1,000,000 3,550,000 5,450,000
Cash collections during the year 800,000 2,600,000 6,600,000
Assume that Westgate Construction's contract with Santa Clara County does not qualify for revenue recognition over time.
Calculate the amount of revenue and gross profit (loss) to be recognized in each of the three years.

User Geekender
by
8.2k points

1 Answer

6 votes

SinceSince the contract does not meet the criteria for revenue recognition over time, revenue and gross profit will only be recognized at the end of the contract. The amount of revenue and gross profit to be recognized in each of the three years can be calculated as follows:2021:Revenue: $0 (no revenue is recognized until the contract is completed)Gross profit: $0 (same as above)2022:Revenue: $0 (same as above)Gross profit: $0 (same as above)2023:Revenue: $10,000,000 (the total contract price is recognized as revenue upon completion)Gross profit:Revenue - Total Cost = $10,000,000 - ($1,400,000 + $3,150,000 + $2,695,000 + $5,600,000 + $2,450,000 + $0) = $705,000Therefore, the amount of revenue and gross profit to be recognized in each of the three years are:$0 and $0 in 2021$0 and $0 in 2022$10,000,000 and $705,000 in 2023.

User Kadian
by
8.9k points