Question

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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 $ 2,604,000 $ 4,032,000 $ 1,940,400
Estimated costs to complete as of year-end 5,796,000 1,764,000 0
Billings during the year 2,040,000 4,596,000 3,364,000
Cash collections during the year 1,820,000 4,000,000 4,180,000
Westgate recognizes revenue over time according to percentage of completion.
Required:
Calculate the amount of revenue and gross profit (loss) to be recognized in each of the three years. (Do not round intermediate calculations. Loss amounts should be indicated with a minus sign.)
2021. 2022. 2023
Revenue
Gross profit(loss)

Answer 1

Year 1

3,100,000 - 2,604,000 = 496,000 gross profit

Year 2

3,900,000 - 4,032,000

Step-by-step explanation:

The percentage of completion will be matched with the amount of revenue recognized

Year 1

2,604,000 / (2,604,000 + 5,796,000)

= 0.31

Earned revenue

10,000,000 × 0.31 = 3,100,000

Year 2

4,032,000 / (4,032,000 + 1,764,000)

= 0.6956521739

Earned revenue

(10,000,000 × 0.70) - 3,100,000

3,900,000

Year 3.

Here, the entire revenue that is missing will be recognized.

10,000,000 - 3,100,000 - 3,900,000

3,000,000