Question
In 2024, 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
In 2024, 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 2026. Information related to the contract is as follows:
| 2024 | 2025 | 2026 | |
|---|---|---|---|
| Cost incurred during the year | $ 2,291,000 | $ 3,555,000 | $ 2,259,400 |
| Estimated costs to complete as of year-end | 5,609,000 | 2,054,000 | 0 |
| Billings during the year | 1,900,000 | 3,946,000 | 4,154,000 |
| Cash collections during the year | 1,700,000 | 3,500,000 | 4,800,000 |
Assume that Westgate Constructions contract with Santa Clara County does not qualify for revenue recognition over time.
Required:
1. Calculate the amount of revenue and gross profit (loss) to be recognized in each of the three years.
2-a. In the journal below, complete the necessary journal entries for the year 2024 (credit Cash, Materials, etc. for construction costs incurred).
2-b. In the journal below, complete the necessary journal entries for the year 2025 (credit Cash, Materials, etc. for construction costs incurred).
2-c. In the journal below, complete the necessary journal entries for the year 2026 (credit Cash, Materials, etc. for construction costs incurred).
3. Calculate the amount of revenue and gross profit (loss) to be recognized in each of the three years, assuming the following costs incurred and costs to complete information.
| 2024 | 2025 | 2026 | |
|---|---|---|---|
| Cost incurred during the year | $ 2,510,000 | $ 3,855,000 | $ 3,210,000 |
| Estimated costs to complete as of year-end | 5,710,000 | 3,210,000 | 0 |
4. Calculate the amount of revenue and gross profit (loss) to be recognized in each of the three years, assuming the following costs incurred and costs to complete information.
| 2024 | 2025 | 2026 | |
|---|---|---|---|
| Cost incurred during the year | $ 2,510,000 | $ 3,855,000 | $ 4,065,000 |
| Estimated costs to complete as of year-end | 5,710,000 | 4,210,000 | 0 |
Req 1:
| 2024 | 2025 | 2026 | |
| Revenue | |||
| Gross Profit (loss) |
Req 2a: 2024 Journal entries
- Record the construction costs
- Record the progress billings
- Record the cash collections
- Record the gross profit (loss)
Req 2b: 2025 Journal entries
- Record the construction costs
- Record the progress billings
- Record the cash collections
- Record the gross profit (loss)
Req 2c: 2026 Journal entries
- Record the construction costs
- Record the progress billings
- Record the cash collections
- Record the gross profit (loss)
Req 3: Rev and GP using new numbers
| 2024 | 2025 | 2026 | |
| Revenue | |||
| Gross Profit (loss) |
Req 4: Rev and GP using new numbers
| 2024 | 2025 | 2026 | |
| Revenue | |||
| Gross Profit (loss) |
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Construction Industry IRS Audit Techniques Guide
Authors: Internal Revenue Service
1st Edition
1304131920, 978-1304131928
