G 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 $2,624,000 $3,690,000 $2,074,600
Estimated costs to complete as of year-end 5,576,000 1,886,000 0
Billings during the year 2,200,000 4,114,000 3,686,000
Cash collections during the year 2,000,000 3,800,000 4,200,000

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.

Year 1:

3,200,000 - 2,624,000 = 576,000 gross profit

Year 2:

4,752,000 - 3,690,000 = 1,062 gross profit

Year 3:

2,048,000  -  2,074,600 = (26,600)

Explanation:

we will match the percentage of completion with the amount of revenue recognized.

Year 1:

2,624,000 / (2,624,000+ 5,576,000) = 0.32

Earned revenue : 10,000,000 x 0.32 = 3,200,000

Then, year 2:

3,690,000 / (3,690,000 + 1,886,000) = 0.661764706

Earned revenue 7,200,000 x 0.66% = 4752000

Finally year 3 we recognize the entire revenue missing

10,000,000 - 3,200,000 - 4,752,000 = 2,048,000

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