Long
Long
Long
PROBLEM 2
In 2009, Golden Engineering entered into an agreement to construct an office building at a contract price of
P5,100,000. Construction data were as follows:
Construction costs
incurred
Estimated costs to
complete
Progress billings
Collections from client
2009
P 750,000
2010
P2,700,000
3,000,000
862,500
570,000
450,000
3,600,000
3,300,000
2011
P 630,000
-930,000
1,350,000
Prepare the necessary entries for each year, assuming the firm uses the:
(1)
(2)
completed-contract method
percentage-of-completion method.
PROBLEM 3
Solidrock Construction contracted to build a ship over a two year period. The contract price was P21,000,000 with an
estimate total cost of P18,400,000. The following cost data relate to the construction period.
Year
2009
2010
2011
Costs Incurred
in Year
P9,000,000
9,500,000
0
Estimated Cost
to Complete
P10,000,000
0
0
Billings
P11,000,000
8,000,000
2,000,000
Cash
Collected
P7,500,000
9,000,000
4,500,000
Prepare the necessary journal entries for 2009, 2010, and 2011 assuming Solidrock uses the percentage-ofcompletion method.
PROBLEM 4
Sealand Construction entered into a contract to construct a floating bridge across a lake. The contract price for the
bridge is P7,500,000. During 2009, costs of P1,800,000 were incurred representing 30% of total expected costs.
Prepare the necessary entries for 2009 to recognize gross profit for the year assuming the firm uses the
(1)
(2)
completed-contract method.
percentage-of-completion method.
PROBLEM 5
.
In 2009, Mandaluyong Builders began construction work under a three-year contract at a price of P7,525,000. The
firm uses the percentage-of-completion method for financial accounting purposes. The income to be recognized each
year is based on the proportion of cost incurred to the total estimated costs for completing the contract. The financial
statement presentations relating to this contract on December 31, 2009, are:
Balance Sheet
Accounts receivable ........................
Construction in progress ...................
Less progress billings .....................
P150,500
P602,000
562,000
Income Statement
Gross profit on construction contracts .....
40,000
P301,000
Determine the
(1)
(2)
PROBLEM 6
On January 1, 2009, Jaguar Enterprises obtained a contract to construct a building. It was estimated at the beginning
of the contract that it would take three years to complete the project at an expected cost of P200,000. The contract
price was P250,000. The following information describes the status of the job at the close of production each year:
2009
P110,000
100,000
125,000
120,000
2010
P120,000
20,000
125,000
120,000
2011
P15,000
0
0
10,000
Compute the items listed below for each year assuming the use of the percentage-of-completion cost-to-cost method.
(Round all percentages to two decimals).
2009
2010
2011
2009
P150,000
90,000
110,000
100,000
2010
P100,000
20,000
120,000
120,000
2011
P15,000
0
20,000
30,000
Compute the items listed below for each year assuming the use of the percentage-of- completion cost-to-cost
method. (Round all percentages to two decimals.)
2009
2010
2011
____
Identify the choice that best completes the statement or answers the question.
1. How should the balances of Progress Billings and Construction in Progress be shown at reporting dates prior to the
completion of a long-term contract?
2. If the percentage-of-completion method is used, what is the basis for determining the gross profit to be recognized in
the second year of a three-year contract?
a.
b.
c.
d.
____ 3.. If the completed-contract method is used, what is the basis for determining the income to be recognized in the second
year of a three-year contract?
a.
b.
c.
d.
____
4. Which of the following would be used in the calculation of the gross profit recognized in the third and final year of a
construction contract that is accounted for using the percentage-of-completion method?
a.
b.
c.
d.
____
Actual
Contract
Price
Yes
Yes
Yes
No
Income
Previously
Recognized
Total
Costs
Yes
Yes
No
Yes
No
Yes
Yes
Yes
5. Assume the percentage-of-completion method of revenue recognition is used on a long-term construction contract.
Under this method, revenues that are earned but unbilled at the balance sheet date should be disclosed
____
6. The completed-contract method of accounting for long-term construction-type contracts is preferable when
7. Which of the following is not a difference between the percentage-of completion and completed-contract methods of
accounting for long-term construction contracts?
a. They report different amounts for inventory during the construction period.
b. They report different amounts for progress billings during the construction period.
c. They cause a different cash inflow during the construction period.
d. They report different amounts for accounts receivable during the construction
period.
____
8. The theoretical support for using the percentage-of-completion method of accounting for long-term construction
projects is that it
a.
b.
c.
d.
____
9. If a company uses the completed-contract method of accounting for long-term construction contracts, then during the
period of construction, financial information related to a long-term contract will
a. appear on both the income statement and balance sheet during the construction
period.
b. appear only on the income statement during the period of construction.
c. appear only on the balance sheet during the period of construction.
d. not appear on the financial statements.
____ 10. When the percentage-of-completion method of accounting for long-term construction projects is used, why is
Construction in Progress increased by the annual recognized gross profit on long-term construction contracts?
a.
b.
c.
d.
____ 11. When comparing the percentage-of-completion and completed-contract methods of accounting for long-term
construction contracts, both methods will report
a.
b.
c.
d.
____ 12. A company uses the percentage-of-completion method to account for a four year construction contract. Progress
billings sent in the second year that were collected in the third year would
a.
b.
c.
d.
____ 13. In accounting for a long-term construction contract for which there is a projected profit, the balance in the
Construction in Progress account at the end of the first year of work using the percentage-of-completion method
would be
a.
b.
c.
d.
zero.
the same as the completed-contract method.
higher than the completed-contract method.
lower than the completed-contract method.
____ 14. On May 1, 2009, Pateros Construction Company entered into a fixed-price contract to construct an apartment building
for P3,000,000. Pateros appropriately accounts for this contract under the percentage-of-completion method.
Information relating to the contract is as follows:
At December 31:
Percentage of completion ........
Estimated costs at completion ...
Income recognized (cumulative) ..
2009
2010
20%
P2,250,000
P 150,000
60%
P2,400,000
P 360,000
What is the amount of contract costs incurred during the year ended December 31, 2010?
a.
b.
c.
d.
P600,000
P960,000
P990,000
P1,440,000
____ 15. Navotas Construction, Inc. has consistently used the percentage-of-completion method of recognizing income. Last
year Navotas started work on a P4,500,000 construction contract, which was completed this year. The accounting
records disclosed the following data for last year:
P1,650,000
1,350,000
1,050,000
2,700,000
How much income should avotas have recognized on this contract last year?
a.
b.
c.
d.
P105,000
P150,000
P300,000
P350,000
____ 16. Caloocan Construction, Inc. has consistently used the percentage-of-completion method of recognizing income.
During 2009, Caloocan started work on a P1,500,000 fixed-price construction contract. The accounting records
disclosed the following data for the year ended December 31, 2009:
P 465,000
1,085,000
550,000
350,000
a.
b.
c.
d.
P15,000
P35,000
P50,000
P115,000
____ 17. Pasay Construction Company has consistently used the percentage-of- completion method. On January 10, 2009,
Pasay began work on a P3,000,000 construction contract. At the inception date, the estimated cost of construction
was P2,250,000. The following data relate to the progress of the contract:
P 300,000
1,800,000
600,000
How much gross profit should Pasay recognize for the year ended December 31, 2010?
a.
b.
c.
d.
P150,000
P262,500
P300,000
P450,000
____ 18. For a construction firm using the completed-contract method, if costs exceed billings on some contracts by P1,000,000
and billings exceed costs by P800,000 on others, the contracts should ordinarily be reported as a
a.
b.
c.
d.
____ 19. Makati Construction Company uses the percentage-of-completion method of accounting. In 2009, Makati began work
on a project which had a contract price of P1,600,000 and estimated costs of P1,200,000. Additional information is
as follows:
2009
P240,000
960,000
2010
P1,060,000
290,000
250,000
1,310,000
1,200,000
The amount of gross profit Makati should recognize on this contract during 2009 is
a.
b.
c.
d.
P40,000.
P80,000.
P100,000.
P200,000.
____ 20. Pasig Construction Company uses the percentage-of-completion method for long-term construction contracts. A
specific job was begun in 2009 and completed in 2011. The contract price was P1,400,000 and cost information as
of each year-end is given below:
2009
2010
2011
P400,000
400,000
P200,000
400,000
P
0
120,000
Assuming Pasig correctly recorded gross profit in 2009, how much gross profit should the company record in 2010?
a.
b.
c.
d.
P0
P20,000
P300,000
P320,000
The following data relate to a construction job started by Valenzuela Co. during 2009:
P300,000
60,000
120,000
90,000
30,000
____ 21.Under the completed-contract method, how much should Valenzuela recognize as gross profit for 2009?
a.
b.
c.
d.
P0
P30,000
P40,000
P90,000
____ 22. Under the percentage-of-completion method, how much should Valenzuela recognize as gross profit for 2009?
a. P0
b. P40,000
c. P80,000
d. P100,000
____ 23. Violet Construction Company uses the percentage-of-completion method for long-term construction contracts. The
company started a project with a contract price of P2,750 in 2009. Given the following data, what is the balance in
Construction in Progress for this contract at the end of 2009?
a.
b.
c.
d.
2009
P 400
2010
P 500
1,600
1,000
P150
P400
P550
P1,750
____ 24. Silver Construction Company uses the percentage-of-completion method for long-term construction contracts. The
company has a project with a contract price of P7,000 on which P600 of gross profit has been recognized in prior
years. Information for the current year is as follows:
P5,000
2,800
What is the loss that Silver should recognize in the current year?
a.
b.
c.
d.
P600
P800
P1,400
No loss should be recognized.
____ 25. In 2009, Konstrak Corp. began construction work under a three-year contract. The contract price is P800,000.
Konstrak used the percentage-of-completion method for financial accounting purposes. The income to be recognized
each year is based on the proportion of costs incurred to total estimated costs for completing the contract. The
financial presentations relating to this contract at December 31, 2009, appear below.
Balance Sheet
Accounts receivable--construction contract
billings ..................................
Construction in progress ....................
Less contract billings ......................
Cost of uncompleted contract in excess of
P15,000
P50,000
(47,000)
billings ..................................
Income Statement
Income (before tax) on the contract
recognized in year 1 ......................
How much cash was collected in 2009 on this contract?
a.
b.
c.
d.
P32,000
P35,000
P47,000
P50,000
3,000
P10,000
Answers
1. D
2. C
3. D
4. B
5. C
6. D
7. C
8. D
9. C
10. B
11. A
12. D
13. C
14. C
15. B
16. C
17. A
18. D
19. B
20. B
21. A
22. B
23. C
MULTIPLE CHOICE
24. C
25. A
PROBLEM 2
(1)
2009
Construction in Progress ....................
Materials, Cash, etc. .....................
750,000
570,000
Cash ........................................
Accounts Receivable .......................
450,000
750,000
570,000
450,000
2010
Construction in Progress ....................
Materials, Cash, etc. .....................
2,700,000
3,600,000
Cash ........................................
Accounts Receivable .......................
3,300,000
2,700,000
3,600,000
3,300,000
2011
Construction in Progress ....................
Materials, Cash, etc. .....................
630,000
930,000
Cash ........................................
Accounts Receivable .......................
1,350,000
5,100,000
4,080,000
630,000
930,000
1,350,000
5,100,000
4,080,000
(2)
2009
750,000
570,000
Cash ........................................
Accounts Receivable .......................
450,000
750,000
270,000
750,000
570,000
450,000
1,020,000
2010
Construction in Progress ....................
Materials, Cash, etc. .....................
2,700,000
3,600,000
Cash ........................................
Accounts Receivable .......................
3,300,000
2,700,000
360,000
2011
2,700,000
3,600,000
3,300,000
3,060,000
630,000
930,000
Cash ........................................
Accounts Receivable .......................
1,350,000
630,000
390,000
630,000
930,000
1,350,000
1,020,000
5,100,000
5,100,000
PROBLEM 3
2009
9,000,000
11,000,000
Cash ........................................
Accounts Receivable .......................
7,500,000
9,000,000
9,000,000
11,000,000
7,500,000
947,368
9,947,368
2010
Construction in Progress ....................
Materials, Cash, etc. .....................
9,500,000
8,000,000
Cash ........................................
Accounts Receivable .......................
9,000,000
9,500,000
2011
9,500,000
8,000,000
9,000,000
1,552,632
11,052,632
2,000,000
Cash ........................................
Accounts Receivable .......................
4,500,000
21,000,000
2,000,000
4,500,000
21,000,000
PROBLEM 4
(1)
Using the completed-contract method, no gross profit is recognized on the contract until the bridge is completed.
Thus, no entry is needed.
(2)
Cost of Long-Term Construction Contracts ...
Construction in Progress ...................
Revenue from Long-Term Construction
Contracts..................................
P1,800,000 / 30% = P6,000,000
P7,500,000 - P6,000,000 = P1,500,000
1,800,000
450,000 *
2,250,000
PROBLEM 5
(1)
P562,000
150,500
P411,500
(2)
Gross profit from construction contract + Construction in progress = Revenue
for 2009
P301,000 + P602,000 = P903,000
P903,000/P7,525,000 = 12%
Percentage completed in 2009
P301,000/.12 = P2,508,333
Estimated income on construction contract
PROBLEM 6
2009
2010
2011
P250,000
110,000
110,000
100,000
210,000
40,000
P250,000
115,000
225,000
20,000
245,000
5,000
P250,000
15,000
240,000
0
240,000
10,000
52%
P130,000
92%
P230,000
100%
P250,000
To Date
at Dec. 31
Previous
Years
2009:
Revenue ............
Costs ............
P130,000
110,000
Current
Year
P130,000
110,000
P 20,000
2010:
Revenue ............
Costs ............
Gross profit ............
P230,000
225,000
P 5,000
P130,000
110,000
P 20,000
P100,000
115,000
P(15,000)
2011:
Revenue ............
Costs ............
Gross profit ............
P250,000
240,000
P 10,000
P230,000
225,000
P 5,000
P 20,000
15,000
P 5,000
2009
1.
2.
3.
4.
P130,000
P 20,000
2010
P100,000
2011
P20,000
20,000
(15,000)
5,000
130,000
230,000
125,000
250,000
PROBLEM 7
Contract price
Current year costs
Costs to date
Estimated cost to complete
Estimated total cost
Estimated total gross profit
Percent complete
Revenue to date
2009
2010
2011
P250,000
150,000
150,000
90,000
240,000
10,000
P250,000
100,000
250,000
20,000
270,000
(20,000)
P250,000
15,000
265,000
0
265,000
(15,000)
63%
93%
P157,500
P232,500
P250,000
Previous
Years
Current
Year
To Date
at Dec. 31
100%
2009:
Revenue ............
Costs ............
Gross profit ............
P157,500
150,000
P 7,500
P157,500
150,000
P 7,500
2010:
Revenue ............
Costs ............
Gross profit ............
P232,500
252,500
P(20,000)
P157,500
150,000
P 7,500
P 75,000
102,500
P(27,500)
2011:
Revenue ............
P250,000
P232,500
P 17,500
Costs ............
Gross profit ............
265,000
P(15,000)
252,500
P(20,000)
2009
2010
P150,000
P102,500
12,500
5,000
2011
P12,500
7,500
157,500
230,000
10,000
10,000
---
(27,500)
5,000