Answer:
Westgate Construction Company
a) Amount of revenue and gross profit (loss) to be recognized in each year:
2021 2022 2023
Cost incurred during the year $2,610,000 $3,162,000 $2,230,800
Percentage of costs to the total 32.61% 39.51% 27.88%
Revenue recognized each year $3,261,000 $3,951,000 $2,788,000
Cost incurred during the year $2,610,000 $3,162,000 $2,230,800
Gross profit $651,000 $789,000 $557,200
b) Information for a partial balance sheet for 2021 and 2022
Current assets: 2021 2022
Accounts receivable (Santa Clara) $250,000 $922,000
Explanation:
a) Data and Calculations:
2021 2022 2023
Cost incurred during the year $2,610,000 $3,162,000 $2,230,800
Estimated costs to complete
as of year-end 6,390,000 2,028,000 0
Billings during the year 2,100,000 3,672,000 4,228,000
Cash collections during the year 1,850,000 3,000,000 5,150,000
Contract price = $10,000,000
Total costs incurred = $8,002,800
Total Gross profit = $1,997,200
Since Westgate Construction's contract with Santa Clara Country does not qualify for revenue recognition over time, revenue can only be recognized based on degree of completion or percentage of completion. This is based on the costs incurred in each year.
2021 2022 2023
Cost incurred during the year $2,610,000 $3,162,000 $2,230,800
Percentage of costs to the total 32.61% 39.51% 27.88%
Revenue recognized each year $3,261,000 $3,951,000 $2,788,000
Cost incurred during the year $2,610,000 $3,162,000 $2,230,800
Gross profit $651,000 $789,000 $557,200
a) Accounts Receivable (Santa Clara)
Date Accounts Title Debit Credit
2021 Construction Contract $2,100,000
2021 Cash Account $1,850,000
2021 Balance 250,000
2022 Balance 250,000
2022 Construction Contract $3,672,000
2022 Cash Account $3,000,000
2022 Balance 922,000
Construction Contract
Date Accounts Title Debit Credit
2021 Cash account $2,610,000
2021 Accounts receivable $2,100,000
2022 Cash account $3,162,000
2022 Accounts receivable $3,672,000
$5,772,000 $5,772,000
Cash Account
Date Accounts Title Debit Credit
2021 Construction Contract $2,610,000
2021 Accounts receivable $1,850,000
2022 Construction Contract $3,162,000
2022 Accounts receivable $3,000,000
