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

Answer:

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---

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