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Chapter 8

Problem I
1. Input Measure - Percentage of Completion Method (Cost to Cost Method)
2008:
Contract price P
1,800,000
Actual costs to date P 450,000
Estimated costs to 1,200,000
complete
Total estimated project 1,650,000
costs
Estimated total gross profit 150,000
Percentage of completion:
P450,000 / P,1650,000 27.27%
Gross profit recognized P 40,905

2009: P
1,800,000
Contract price
Costs
incurred:
2008 P 450,00
2009 1,100,000
Total cost 1,550,000
Total gross profit 250,000
Recognized in 2008 40,905
Recognized in 2009 P 209,095

2. Input Measure - Cost Recovery Method


2008: (all costs not yet recovered) P -0-
2009:
Contract price 1,800,00
Costs incurred: 2008 P 450,000
2009 1,100,000
Total cost 1,550,000
Total gross profit P 250,000

Problem II
1. Input Measure - Percentage of Completion Method (Cost to cost Method)
Years Gross Profit (or Loss) Supporting computations
recognized
2008 P 2 million (P108 90) x (P30/P90) = P6
million
2009 ( P18 million) Total loss is (P108 120) = (P12
million)
To date, P6 million was recorded:
therefore, (P12 million) P6 million
= (P18 million) in 2009
2010 P 10 million Total loss is P 108 110) = (P2
million)
To date, (P 12 million was recorded:
therefore, ( P2 million) (P12
million) = P10 million in 2010
2. Input Measure - Cost Recovery Method
Years Gross Profit (or Loss) Supporting computations
2008 P -0- ( P108 90) = P18 anticipated
gross profit, so no need to
recognized a gross loss
2009 (P 12 million) Total loss is ( P108 120) = (12
million)
2010 P 10 million Total loss is (P108- 110) ( P2
million)
To date, ( P12 million was recorded:
therefore, ( P2 million) ( P12
million) = P10 million in 2010

Problem III
1. Journal Entries
a. Input Measure Percentage of completion (cost-to-cost method)
The following analysis is to determine the percentage of completion:
20x3 20x4 20x5
Contract price:
Initial amount of contract... P528,000 P528,000 P528,000
Variation.. _______- __12,000 __12,000
Total contract price.. P528,000 P540,000 P540,000
Costs incurred each year P 126,048 *P244,032 P121,920
Add: Costs incurred in prior years. _______- _126,048 _370,080
Actual costs incurred to date (1).. P126,048 *P370,080 P492,000
Add: Estimated costs to complete.. _358,752 _121,920 _______-
Total estimated costs (3).. P484,800 P492,000 P492,000
Estimated gross profit P 43,200 P 48,000 P 48,000
Percentage of completion (1) / (3) 26% **74% 100%
* including the P7,200 additional costs in 20x4.
** it should be noted that the percentage of completion for 20x4 is calculated by deducting the P6,000 of
materials held for the following period from the costs incurred up to that year end, i. e., P370,080 P6,000 =
P364,080, P364,080 / P492,000 = 74%.

The revenue, expenses (costs) and profit will be recognized in profit or loss as follows:

Recognized in Recognized in
20x3 To date prior years current year
Revenue (P528,000 x 26%) P 137,280 - P 137,280
Costs/Expenses (P484,800 x 26%) 126,048 - 126,048
Gross Profit (P43,200 x 26%) P 11,232 - P 11,232

Recognized in Recognized in
20x4 To date prior years current year
Revenue (P540,000 x 74%) P 399,600 P 137,280 P 262,320
Costs/Expenses (P492,000 x 74%) _364,080 _126,048 238,032
Gross Profit (P48,000 x 74%) P 35,520 P 11,232 P 24,288

20x5 To date Recognized in Recognized in


prior years current year
Revenue (P540,000 x 100%) P 540,000 P 399,600 P 140,400
Costs/Expenses (P492,000 x 100%) _492,000 _364,080 _127,920
Gross Profit (P48,000 x 100%) P 48,000 P 35,520 P 12,480

Alternatively, the gross profit recognized each year may also be computed as follows:
20x3 20x4 20x5
Contract price:
Initial amount of contract....... P528,000 P528,000 P528,000
Variation _______- __12,000 12,000
Total contract price P528,000 P540,000 P540,000
Costs incurred each year. P126,048 P240,032 P121,920
Add: Costs incurred in prior years.. _______- _126,048 _370,080
Actual costs incurred to date (1)... P126,048 P370,080 P492,000
Add: Estimated costs to complete _358,752 _121,920 _______-
Total estimated costs (3)... P484,800 P492,000 P492,000
Estimated gross profit P 43,200 P 48,000 P 48,000
Percentage of completion (1) / (3)... ____26% ____74% ___100%
Gross profit to date. P 11,232 P 35,520 P 48,000
Less: Gross profit in prior years. _______- ___11,232 __35,520
Gross profit in current year -% of completion P 11,232 P 24,288 P 12,480
Gross profit in current year cost recovery
method P 0 P 0 P 48,000

Following are the entries for the years 20x3 to 20x5:


Percentage of Completion Method
20x3 20x4 20x5
1. To record costs incurred:
Construction In 126,04 232,03 127,92
Progress*...... 8 2 0
Materials
Inventory.. 6,000 6,000
Cash, payables, 126,04 244,03 121,92
etc.. 8 2 0

2. To record progress billings:


144,00 240,00 156,00
Accounts receivable.. 0 0 0
Progress billings*. 144,00 240,00 156,00
. 0 0 0

3. To record collections:
120,00 228,00 192,00
Cash..... 0 0 0
Accounts 120,00 228,00 192,00
receivable 0 0 0

4. To recognize Revenue, Costs


and Gross Profit:
Construction 126,04 238,03 127,92
Expenses 8 2 0
Construction in Progress*..
.... 11,232 24,288 12,480
Revenue from 137,28 262,32 140,40
Construction...... 0 0 0
5. To close Construction In
Progress**
and Progress Billings account:
Progress 540,00
billings 0
Construction In 540,00
Progress. 0
* The term Contract account may alternatively be used.
** If Contract account is used then no entry is required for No. 5.

b. Input Measure Cost Recovery Method


The following table shows the data needed for further analysis:
20x3 20x4 20x5
Contract price:
Initial amount of contract... P528,000 P528,000 P528,000
Variation.. _______- __12,000 __12,000
Total contract price.. P528,000 P540,000 P540,000
Costs incurred each year P126,048 P244,032 P121,920
Add: Costs incurred in prior years. _______- _126,048 _370,080
Actual costs incurred to date.... P126,048 P370,080 P492,000
Add: Estimated costs to complete.. ____ _? ____ _? _______-
Total estimated costs ... P ? P ? P492,000

The revenue, expenses (costs) and profit will be recognized in profit or loss as follows:
Recognized in Recognized in
20x3 To date prior years current year
Revenue* P 126,048 - P 126,048
Costs/Expenses 126,048 - 126,048
Gross Profit P 0 - P 0
* equivalent to costs incurred

Recognized in Recognized in
20x4 To date prior years current year
Revenue* P 364,080 P 126,048 P 238,032
Costs/Expenses _364,080 126,048 238,032
Gross Profit P 0 P 0 P 0
* equivalent to costs incurred

Recognized in Recognized in
20x5 To date prior years current year
Revenue (P540,000 x 100%) P 540,000 P 364,080 P 175,200
Costs/Expenses (P492,000 x 100%) _492,000 364,080 127,920
Gross Profit (P48,000 x 100%) P 48,000 P 0 P 48,000

Alternatively, the gross profit recognized each year may also be computed as follows:
20x3 20x4 20x5
Contract price:
Initial amount of contract....... P528,000 P528,000 P528,000
Variation _______- __12,000 12,000
Total contract price P528,000 P540,000 P540,000
Costs incurred each year. P 126,048 P244,032 P 121,920
Add: Costs incurred in prior years.. _______- _126,048 _370,080
Actual costs incurred to date .... P 126,048 P370,080 P492,000
Add: Estimated costs to complete ____ _? ____ _? _______-
Total estimated costs .... P ? P ? P492,000
Estimated gross profit. P 0 P 0 P 48,000
Percentage of completion.. _ -___ _ -___ ___100%
Gross profit to date. P 0 P 0 P 48,000
Less: Gross profit in prior years. _______- _______- __ 0
Gross profit in current year... P 0 P 0 P 48,000

Following are the entries for the years 20x3 to 20x5:

20x3 20x4 20x5


1. To record costs incurred:
Construction In 126,04 238,03 127,92
Progress*...... 8 2 0
Materials
Inventory.. 6,000 6,000
Cash, payables, 126,04 244,03 121,92
etc.. 8 2 0

2. To record progress billings:


144,00 240,00 156,00
Accounts receivable.. 0 0 0
Progress billings*. 144,00 240,00 156,00
. 0 0 0

3. To record collections:
120,00 228,00 192,00
Cash..... 0 0 0
Accounts 120,00 228,00 192,00
receivable 0 0 0

4. To recognize Revenue, Costs


and Gross Profit:
Construction 126,48 238,03 127,92
Expenses 0 2 0
Construction in Progress*..
.... 48,000
Revenue from 126,48 238,03 175,92
Construction...... 0 2 0

5. To close Construction In
Progress**
and Progress Billings account:
Progress 540,00
billings 0
Construction In 540,00
Progress. 0
* The term Contract account may alternatively be used.
** If Contract account is used then no entry is required for No. 5.

2. Due from/Due to Customers


a. Input Measure - Percentage of Completion Method
Current Asset:
20x3 20x4 20x5
Accounts receivable. P 24,000 P 36,000 P -
Other receivables:
Construction In Progress P399,600
Less: Progress billings. _384,000
Gross amount due from
customers... P 15,600
Raw materials Inventory P 6,000

Current Liability:
Payables (Payments on Account)
Progress billings P144,000
Less: Construction In Progress. _137,280
Gross amount due to
customers P 6,720

Construction In Progress Progress Billings

20x3 CI 126,048 144,000 20x3


Pr 11,232

end of x3 137,280 144,000 end of x3


20x4 CI 238,032 240,000 20x4
Pr 24,288

end of x4 399,600 384,000 end of x4


20x5 CI 127,920 156,000 20x5
Pr 12,480

540,000 540,000 540,000 540,000

where: CI - cost incurred each year


Pr - profit

b. Input Measure Cost Recovery Method


Current Asset:
20x3 20x4 20x5
Accounts receivable. P 24,000 P 36,000 P -
Raw materials Inventory P 6,000

Current Liability:
Payables (Payments on Account)
Progress billings P 137,280 P384,000
Less: Construction In Progress. _144,000 _364,080
Gross amount due to
customers P 6,720 P 19,920
Construction In Progress Progress Billings

20x3 CI 126,048 144,000 20x3


Pr 0

end of x3 126,048 144,000 end of x3


20x4 CI 238,032 240,000 20x4
Pr 0

end of x4 364,080 384,000 end of x4


20x5 CI 127,920 156,000 20x5
Pr 48,000

540,000 540,000 540,000 540,000

where: CI - cost incurred each year


Pr - profit
3. Gross Profit
a. Input Measure - Percentage of Completion Method (refer to requirement 1 for detailed
computation)
20x3 20x4 20x5
Revenue P 137,280 P 262,320 P 140,400
Less: Costs / Expenses... _126,048 _238,032 _127,920
Gross Profit. P
11,232 P 24,288 P 12,480

b. Input Measure Cost Recovery Method (refer to requirement 1 for detailed


computation)
20x3 20x4 20x5
Revenue P 126,048 P 238,032 P 175,920
Less: Costs / Expenses... _126,048 _238,032 _127,920
Gross Profit. P 0 P 0 P 48,000

Problem IV
1. Anticipated/Gross Loss
a. Input Measure Percentage of Completion (Cost-to-Cost Method)

2008:
Contract price P2,500,000
Actual cost to date P1,500,00
0 a.
Estimated costs to complete 1,200,000 Input
Total estimated project costs 2,700,000
Estimated loss, recognized in 2008 P
(200,000)

2009:
Contract price P
2,500,000
Costs incurred: In 2008 P1,500,00
0
In 2008 1,300,000
Total cost 2,800,000
Total loss P
(300,000)
Recognized in 2008 (200,000)
Recognized in 2009 P
(100,000)
Measure Cost Recovery Method
Loss in 20x4 P( 200,000)
Loss in 20x5 P (100,000)

2. Journal Entries
a. Input Measure Percentage of Completion (Cost-to-Cost Method)
2008:
Construction in progress 1,500,000
Various credits 1,500,000

Accounts receivable 1,200,000


Billings on construction contract 1,200,000

Cash 1,000,000
Accounts receivable 1,000,000

Cost of construction 1,588,889


Construction in progress (loss) 200,000
Revenue from long-term contracts* 1,388,889
2009:
Construction in progress 1,300,000
Various credits 1,300,000

Accounts receivable 1,300,000


Billings on construction contract 1,300,000

Cash 1,500,000
Accounts receivable 1,500,000

Cost of construction 1,211,111


Construction in progress (loss) 100,000
Revenue from long-term 1,111,111
contracts**

Billings on construction contract 2,500,000


*P2,500,000
Construction in progress 2,500,000
(P1,500,000/P2,700,000)
** P2,500,000 1,388,889

Problem V
Item to compute Answer
Total revenue recognized during 2009 (w): P50 million
CIP contains cost + gross profit = revenue, so w = P50 P 15
million
Gross profit recognized during 2009 (x): P50 P35 = P15
Billings on construction (y) : P14 + P 46 = P60 P60million
Net billings in excess of construction in progress (z): Billings of P60 P10 million
CIP of P50
Calculate the percentage of PAC that was completed during 2009:
50/150 = 33.33% 333.33%

Problem VI
Item to compute Answer
Cash collected by KP on Cincy One during 2009. (P75 billings P10 P65 million
A/R)
Actual costs incurred by KP on Cincy One during 2009 (P66 CIP P22 P44 million
gross pofit)
At 12/31/2009, the estimated remaining costs to complete Cincy One P156
(44/{44 + x})(300 {44 + x}) = 22; x = 156 million
The percentage of Cincy One that wa completed during 2009 100 x 22%
(44/ {44 + 156})

Problem VII
1.
Progress billings on construction contract P562,000
Less accounts receivable 150,500
Cash collected in 20x4 P411,500

2.
Gross profit from construction contract + Construction in progress = Revenue for 20x4
P301,000 + P602,000 = P903,000
P903,000/P7,525,000 = 12% Percentage completed in 20x4
P301,000/.12 = P2,508,333 Estimated income on construction contract

Problem VIII
1. Percentage of Completion Method (Cost-to-cost Approach)
20x4 20x5 20x6
Contract price ................... P250,000 P250,000 P250,000
Current year costs ............... 110,000 120,000 15,000
Costs to date .................... 110,000 230,000 245,000
Estimated cost to complete ....... 100,000 20,000 0
Estimated total cost ............. 210,000 245,000 240,000
Estimated total gross profit ..... 40,000 5,000 5,000
Percent complete ................. 52% 94% 100%
Revenue to date .................. P130,000 P230,000 P250,000

To Date Previous Current


at Dec. 31 Years Year
20x4: Revenue P130,000 P130,000
Costs (110/210 x 210) 110,000 110,000
Gross profit P 20,000 P 20,000

20x5: Revenue P235,000 P130,000 P105,000


Costs (230/245 x 245) 230,000 110,000 120,000
Gross profit (loss) P 5,000 P 20,000 P(15,000)

20x6: Revenue P250,000 P235,000 P 15,000


Costs 245,000 230,000 15,000
Gross profit P 5,000 P 5,000 P 0

20x4 20x5 20x6


1. Revenue recognized during
the year P130,000 P100,000 P15,000
2. Gross profit recognized during
the year 20,000 (15,000) 0
3. Balance in the construction in
progress account at Dec. 31 . 130,000 235,000 0
4. Balance in the progress
billings account at Dec. 31 . 125,000 250,000 0
5. Net (3-4) or (4-3) due from (due to) 5,000 (15,000) 0

2. Cost Recovery Method


20x4 20x5 20x6
1. Revenue recognized during
the year P110,000 P120,000 P20,000
2. Gross profit recognized during
the year 0 0 5,000
3. Balance in the construction in
progress account at Dec. 31 . 110,000 230,000 0
4. Balance in the progress
billings account at Dec. 31 . 125,000 250,000 0
5. Net (3-4) or (4-3) due from (due to) (15,000) (20,000) 0

Problem IX

1. Percentage of Completion Method (Cost-to-cost Approach)

2005 2006 2007


Contract price P250,000 P250,000 P250,000
Current year costs 150,000 100,000 15,000
Costs to date 150,000 250,000 265,000
Estimated cost to complete 90,000 20,000 0
Estimated total cost 240,000 270,000 265,000
Estimated total gross profit 10,000 (20,000) (15,000)
Percent complete 63% 93% 100%

Revenue to date P157,500 P232,500 P250,000

To Date Previous Current


at Dec. 31 Years Year
2005: Revenue ............ P157,500 P157,500
Costs (150/240 x 240) 150,000 150,000
Gross profit ............ P 7,500 P 7,500

2006: Revenue ............ P232,500 P157,500 P 75,000


Costs ............ 252,500 150,000 102,500
Gross profit (loss) ............ P(20,000) P 7,500 P(27,500)

2007: Revenue ............ P250,000 P232,500 P 17,500


Costs ............ 265,000 252,500 12,500
Gross profit (loss) ............ P(15,000) $(20,000) P 5,000

20x4 20x5 20x6


1. Construction costs (expense)
recognized during the year P150,000 P102,500 P12,500
2. Gross profit recognized during
the year 7,500 (27,500) 5,000
3. Balance in the construction in
progress account at Dec. 31
(after closing entries) 157,500 230,000* 0
4. Balance in the progress
billings account at Dec. 31 . 110,00 230,00 0
0 0
5. NNet (3-4) or (4-3) due from (due to) 47,50 0 0
0

Balance in accounts receivable


at Dec. 31 (after closing entries) 10,000 10,000 0

*P150,000 + 7,500 + 157,500 + 100,000 costs incurred during the year 27,500
loss

2. Cost Recovery Method


20x4 20x5 20x6
1. Construction costs (expense)
recognized during the year P150,000 P 80,000* P20,000**
2. Gross profit recognized during
the year 0 (20,000) 5,000
3. Balance in the construction in
progress account at Dec. 31
(after closing entries) 150,000 ***230,000 0
4. Balance in the progress
billings account at Dec. 31 . 110,00 230,00 0
0 0
5. NNet (3-4) or (4-3) due from (due to) 40,00 0 0
0
Balance in accounts receivable
at Dec. 31 (after closing entries) 10,000 10,000 0
*P100,000 costs incurred P20,000 estimated loss = P80,000, revenue 20x5
** P250,000 P150,000, revenue 20x4 P80,000, revenue 20x5
***P150,000 + P100,000 P20,000
Multiple Choice Problems
1. a
Costs incurred each year
(2.5 M + 2.0 M + 1 M* + .5 M) P 6M
Add: Cost incurred in prior years 0
Costs incurred to date P 6M
Add: Estimated cost to complete
Total estimated costs P 18 M
Percentage of completion 6 M / 18M
Administrative cost as long as reimbursable is included in the construction costs.
Marketing costs are considered as expenses.
Depreciation of idle equipment is charged to expenses.

2. b
P7,200,000
x (P15,000,000 P12,000,000) = P1,800,000.
P7,200,000 + $4,800,000

3. c
P1,170,000
- x (P3,300,000 P1,950,000) = P810,000
P1,950,000

(P3,300,000 P2,010,000) P810,000 = P480,000.

4. d
Under the percentage of completion method, the Construction-In-Progress account is
used for cost incurred during the year and any realized gross profit (loss). The following
T-account is prepared:
Construction-In-Progress
CI in 2004 210,000
RGP in 20x4 (?) 34,000
End of 20x4 244,000
CI in 20x5 384,000
RGP in 20x5 (?) 100,000

End of 20x5 728,000

5. b P1,200,000
x (P7,200,000 P4,800,000) = P600,000.
P4,800,000

6. c P7,200,000 P4,875,000 =P2,325,000.

7. a
20x4
Contract Price P4,800,000
x: Percentage-of-completion _______75%
Recognized Revenue to date P3,600,000
Less: Costs incurred to date P3,400,000
Gross Profit to date P 200,000
Less: GP in prior year _______-0-
Gross profit in current year P 200,000

8. a P3,600,000
x (P8,400,000 P6,000,000) = P1,440,000.
P6,000,000

9. b P8,400,000 P5,600,000 = P2,800,000.

Items 10 and 11
Number identified is 5, the answer is (a)
a [P1,950,000 (P1,950,000 + P1,300,000)] P2,250,000 = P1,350,000
(P5,500,000 P3,350,000) P1,350,000 = P800,000.

10. Cost Recovery Method - c - P5,500,000 P3,350,000 = P2,150,000.

11. a - Gross profit is recognized in the year of sale, 20x4; therefore, in 20x6 no gross profit
should be realized.

12. c P600,000
x (P1,500,000 P1,000,000) = P300,000
P600,000 + P400,000

(P1,500,000 P1,050,000) P300,000 = P150,000.


13. a
Contract Price P6,000,000
Less: Total Estimated Costs
Costs Incurred-1/10/x4 to 12/31/x5 P3,600,000
Add: Estimated costs to complete 1,200,000 4,800,000
Less: Costs incurred to date P1,200,000
Multiplied by: % of completion ___3.6/4.8
Gross Profit to date P 900,000
Less: GP in prior year (given) ___600,000
Gross profit in current year P 300,000

14. b
20x4: Cost to date P7,500,000 x 20%
P1,500,000
20x5: Cost to date P8,000,000 x 60%
4,800,000
Cost incurred during 20x5 P3,300,000

15. b = (P25,000,000 .60) (P22,500,000 .25) = P9,375,000.

16. b
Costs Incurred 50,000
Contract price. P260,000
Cost incurred each year.. P 50,000
Add: Cost incurred in prior year. -0-
Costs incurred to date.. P 50,000
Add: Estimated costs to complete 150,000
Total estimated costs. P200,000
Estimated gross profit (loss).. P60,000)
Multiplied by: percentage of completion.. __50/200 15,000
Construction In Progress account 65,000
Less: Progress billings 30,000
Construction In Progress account (net) or Due from customers 35,000

17. d - P2,040,000 P980,000 = P1,060,000 (revenue limited to costs incurred since cost-
recovery method must be used).
18. a - P2,040,000 (P1,000,000 + P1,000,000) = P40,000.
19. c - (P1,000,000 + P1,000,000) (P648,000 + P1,280,000) = P72,000.

20. d
21. d
Recognized gross profit (loss) to date.. P( 100,000)
Less: Recognized gross profit in prior ____20,000
years.
Recognized gross profit each year.. P (120,000)

22. b = P5,600,000 (P2,560,000 + P3,280,000) = P240,000.

23. c
Prior year Current year
Contract price. P7,000,00 P7,000,000
0
Cost incurred each year..
Add: Cost incurred in prior year.
Costs incurred to date.. P5,000,000
Add: Estimated costs to complete 2,800,000
Total estimated costs. P7,800,000
Estimated gross profit (loss). (P 800,000)
.
Multiplied by: percentage of completion.. _____100%
Recognized gross profit (loss) to date.. P600,000 (P 800,000)
Less: Recognized gross profit in prior ___600,000
years.
Recognized gross profit each year.. (P1,400,000)

24. c P7,440,000 .30 = P2,232,000.

25. d (P7,200,000 .75) (P7,100,000 .30) = P3,270,000.

26. b (P7,440,000 .75) (P620,000 8) = P620,000 debit.

27. c P7,440,000 .25 = P1,860,000


P7,500,000 (P7,200,000 .75) = P2,100,000.

28. b (P9,000,000 P8,250,000) (P3,795,000 P8,250,000) = P345,000.

29. c P3,795,000 + P345,000 = P4,140,000.

30. d P3,500,000 P1,350,000 P1,525,000 = P625,000.

31. b P240,000 P100,000 = P140,000.

32. d P300,000 P60,000 = P240,000

P240,000
x (P2,400,000 Total estimated cost) = P60,000
Total estimated cost

Total estimated cost = P1,920,000


P2,400,000 P1,920,000 =P480,000.

33. c (P6,325,000 P13,750,000) P1,250,000 = P575,000.

34. a (P6,325,000 P13,750,000) P1,250,000 = P575,000.


P6,325,000 + P575,000 = P6,900.000.
35. d - P85M costs incurred in 2011 = revenue recognized in 2011. Under the costs recovery
(zero-profit approach) of construction accounting, revenue is recognized up to the extent
of costs incurred as long as it is probable will be recoverable.

36. b - 20x5: P12,000,000 > P11,870,000, No loss;


20x6: P12,000,000 P12,400,000 = P400,000 loss.

37. a - Revenue recognized to the extent of costs incurred

38. c P3,200,000 P2,150,000 = P1,050,000.

39. c P1,500,000 P820,000 = P680,000.

40. a
Under PFRS, the excess of Construction In Progress amounting to P2,100,000
(P2,250,000 P150,000, loss) P1,900,000, billings = P200,000 is classified as due from
customers.

Under the US FASB, the excess of P200,00 is considered as an inventory


account.

41. c
Costs of construction 1,200,000
Construction in progress 800,000
Revenue for long-term contracts 2,000,000
Percentage complete = P1,200,000 / (P1,200,000 +P600,000) = 2/3
Revenue recognized = 2/3 P3,000,000 = P2,000,000
Cost recognized = P1,200,000
Gross profit recognized = P2,000,000 P1,200,000 = P800,000

42. a
Costs of construction P1,200,000
Profit 800,000
Construction In Progress P2,000,000
Less: Progress billings 1,500,000
Excess (Due from customers) P 500,000
43. b
Costs of construction 600,000
Construction in progress 400,000
Revenue for long-term contracts 1,000,000
Total revenue P3,000,000 revenue previously recognized P2,000,000 = Revenue to
recognize this year P1,000,000.
Cost recognized = P600,000
Gross profit recognized = P1,000,000 P600,000 = P400,000
44. d
Costs of construction 1,200,000
1,2000,00
Revenue for long-term contracts 0
Under cost recovery method, revenue should be recognized up to the extent of costs
incurred.

45. b
Costs of construction P1,200,000
Profit 0
Construction In Progress P1,200,000
Less: Progress billings 1,500,000
Excess (Due to customers) P( 300,000)
46. d
Costs of construction 600,000
Construction in progress 1,200,000
Revenue for long-term contracts 1,800,000
Under the cost recovery method, record equal amounts of revenue and cost until cost
recovered, and then record gross profit. In 20x4, recorded revenue and cost of
P1,200,000, so record remaining cost of P600,000 and all gross profit of P1,200,000 in
20x5.
47. a
20x4 20x5
Contract price P 9,600,000 P10,080,00

Costs incurred to date P 4,920,000 P


8,640,000
Add: Estimated cost to complete 4,920,000 2,160,000
Total estimated costs P 9,840,000 P
10,800,000
Estimated Gross Profit (loss) P(240,000 P
) (720,000)
Multiply by: % of completion 100% 100%
Recognized Gross Profit (Loss) to date P P (720,000)
(240,000)
Less: Gross Profit (Loss) in prior year _________ (240,000)
Recognized Gross Profit (Loss) in current year P P
(240,000) (480,000)
% of Completion / Cost Recovery Method:
Construction in Progress Progress Billings

CI 4,920,000 240,000 loss 5,280,000

4,680,000 5,280,000
CI 3,720,000 480,000 loss 3,420,000

7,920,000 8,700,000
due to customers
P780,000
Note: If there is an anticipated loss, the Construction-in-Progress for both methods
will exactly be the same in the year the loss was incurred.
48. d
Percentage of Completion: Project 6 Project 7 Project 8
Contract price.. P500,000 P700,000 P250,000
Cost incurred each year. P375,000 P100,000 P100,000
Add: Cost incurred in prior year _________ ________ ________
Costs incurred to date P375,000 P100,000 P100,000
Add: Estimated costs to compute. ________ 400,000 100,000
Total estimated costs. P375,000 P500,000 P200,000
Estimated gross profit P125,000 P200,000 P 50,000
Multiply by: percentage of completion. 100 20 50%
% %
Recognized gross profit to date P125,000 P 40,000 P 25,000
Less: Recognized gross profit in prior _________ _________ _________
years
Recognized gross profit each year. P125,000 P 40,000 P 25,000
Cost Recovery Method of Construction Accounting:
Project 6 Project 7 Project 8
Recognized Revenue.... P500,000 P100,000 P100,000
*
Less: Costs of long-term construction
contract.. 100,000 100,000
375,000
Recognized gross profit each year. P125,000 P 0 P 0
* Since the contract is completed then the full amount of P500,000 contract price should be
recognized as revenue.
Percentage of Completion Cost Recovery Method of Construction
Construction in Progress Construction in Progress
Pr. 6 - Cl. 375,000 500,000 Pr. 6 Pr. 6 - Cl. 375,000 500,000 Pr. 6
Pr. 125,000 Pr. 125,000
Pr. 7 Cl. 100,000 Pr. 7 CI 100,000
Pr. 40,000 Pr. 8 CI 100,000
Pr. 8. Cl 100,000 700,000 500,000
Pr. 100,000 12/31 200,000 (d)
765,000 500,000
12/31 (d)
265,000
49. a
Input Measures: Efforts-Expended Method - using timbers laid
Year 2 Year 3
Timers laid Each Year 300 500
Add: Timbers laid in Prior Years 150 450
Timbers laid to date 450 950
Add: Additional support timbers to be laid 520 -0-
Total Estimated Timbers 970 950
Percentage-of-Completion 45/97 100%
x: CONTRACT PRICE P 800,000 P 800,000
Recognized Revenue to Date P 371,134 P 800,000
Recognized Revenue in Prior Years 371,134
Recognized Revenue in Current Yr. P
428,866
Output Measures Number of trail feet
Year 2 Year 3
Trail feet Each Year 7,500 8,000
Add: Trail fees in Prior Years 3,000 10,500
Trail feet to date 10,500 18,500
Add: Additional trail feet to be constructed 8,200 ___-0-
Total Estimated Trail feet 18,700 18,500
Percentage-of-Completion 105/187 100%
x: CONTRACT PRICE P 800,000 P 800,000
Recognized Revenue to Date P 449,198 P 800,000
Recognized Revenue in Prior Years 449,198
Recognized Revenue in Current Yr. P
350,802
50. b
2006 2007 2008
Contract price.. P5,000,00 P5,000,00 P5,000,000
0 0
Cost incurred each year. P2,050,00
0
Add: Cost incurred in prior year 900,000 2,550,000
Costs incurred to date P P2,550,00 P4,600,000
900,000 0
Add: Estimated costs to complete 1,700,00 -0-
0
Total estimated costs. P4,250,00 P4,600,000
0
Estimated gross profit P P 400,000
750,000
Multiply by: percentage of completion. 60 100
% %
Recognized gross profit to date P P P 400,000
100,000 450,000
Less: Recognized gross profit in prior -0- 100,000 450,000
years
Recognized gross profit each year. P P P( 50,000)
100,000 350,000
51. d refer to No. 50
52. c
Contract Price P60,000,000
Less: Total Estimated Costs
Cost Incurred to Date P26,000,000
Add: Estimated Costs to Complete 25,000,000 51,000,000
Estimated Gross Profit. P 9,000,000
Multiplied by: % of completion. 30%
Recognized gross profit to date.. P 2,700,000
Less: RGP in prior years _________0
Recognized gross profit in current year P 2,700,000

Construction-in-progress Account:
Costs incurred to date.. P 26,000,000
GP in the current year 2,700,000
P 28,700,000
Less: Progress billings.. 5,000,000
Due from customer (net). P 23,700,000

53. c
Contract Price P100,000,000
Multiplied by: Gross Profit Rate _________25%
Estimated Gross Profit of the entire contract P 25,000,000
Multiplied by: Percentage of Completion for first year _________50%
Gross Profit realized for current year P 12,500,000

54. c
Contract Price P120,000,000
x: Mobilization Fee
10%
Collection in 20x4 P 12,000,000
Note: Billings for 20x4 will be collected in January 20x5.

55. a
Mobilization Fee: 5% x P10M P 5.0 M
Collection on Billings:
Contract price P 100 M
x: Progress billings, net of 10% and 8% (50% - 10% - 8%) 32%
Progress billings P 32 M
x: Collections net of contract retention of 10% 90% 28.8
M
Collections in 20x4 P 33.8 M

56. b cost recovery method is used.


At the end of 20x4 the contractor must recognized only to the extent of recoverable
contract costs incurred (i.e., P5,000 contract revenue and P5,000 construction
costs/expenses).

THEORIES
1 False 6. False 11. False 16. True 21 True 26. True 31 False
. . .
2 True 7. False 12. True 17. False 22 False 27. True 32 False
. . .
3 True 8. False 13. False 18. True 23 False 28. False 33 True
. . .
4 False 9. True 14. True 19. False 24 False 29. False 34 False
. . .
5 False 10 False 15, False 20. True 25 False 30. True 35 True
. , . .

36. False
37 True
.
38 True
.
39 False
.
40 False
.

41. b 46. a 51. c 56. d 61. d 66. c


42 c 47. d 52. b 57. b 62. b 67. b
.
43 b 48. c 53. c 58. c 63. a 68. a
.
44 c 49. c 54. b 59. c 64. c 69. d
.
45 b 50. a 55. a 60. c 65. d 70. C
.