Question

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 $ 2,490,000 $ 3,984,000 $ 2,008,600 Estimated costs to complete as of year-end 5,810,000 1,826,000 0 Billings during the year 2,030,000 4,444,000 3,526,000 Cash collections during the year 1,815,000 3,900,000 4,285,000 Westgate recognizes revenue over time according to percentage of completion. Required: 1. 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.)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).

Answer 1

2021: revenue 3,000,000

gross profit 510,000

2022: revenue 4,800,000

gross profit 816,000

2023: revenue 2,200,000

gross profit 374,000

2022 journal entries:

construction in progress 3,984,000 debit

various account 3,984,000 credit

--to record cost incurred--

account receivables 4,444,000 debit

unearned revenue 4,444,000 credit

--to record billed amount

cash 3,900,000 debit

account receivables 3,900,000 credit

--to record cash collection--

unearned revenue 4,800,000 debit

construction revenue 4,800,000 credit

---to record earned revenue according to

percentage of completion method---

Step-by-step explanation:

2021:

incurred 2,490,000

total cost estimated:

2,490,000 + 5,810,000 = 8,300,000

percentage: 2,490,000 / 8,300,000 = 30%

revenue 10,000,000 x 30% = 3,000,000

cost 2,490,000

gross profit 510,000

2022:

incurred 3,984,000

total cost: 2,490,000 + 3,984,000 + 1,826,000 = 8,300,000

percentage: 3,984,000 / 8,300,000 = 48%

revenue 10,000,000 x 48% = 4,800,000

cost 3,984,000

gross profit 816,000

2023:

completed:

remaining revenue: 100% - 48% - 30% = 22%

10,000,000 x 22% = 2,200,000

cost incurred 1,826,000

gross profit 374,000