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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
2009

P 450,00
1,100,000

Total cost
Total gross profit
Recognized in 2008
Recognized in 2009
2. Input Measure - Cost Recovery Method
2008: (all costs not yet recovered)
2009:
Contract price
Costs incurred:
2008
2009
Total cost
Total gross profit

1,550,000
250,000
40,905
P 209,095
P -01,800,00
P 450,000
1,100,000
1,550,000
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
Contract price:
Initial amount of contract...
Variation..
Total contract price..
Costs incurred each year
Add: Costs incurred in prior years.
Actual costs incurred to date (1)..
Add: Estimated costs to complete..
Total estimated costs (3)..
Estimated gross profit
Percentage of completion (1) / (3)

P528,000
_______P528,000
P 126,048
_______P126,048
_358,752
P484,800
P 43,200
26%

20x4
P528,000
__12,000
P540,000
*P244,032
_126,048
*P370,080
_121,920
P492,000
P 48,000
**74%

20x5
P528,000
__12,000
P540,000
P121,920
_370,080
P492,000
_______P492,000
P 48,000
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:
20x3
Revenue (P528,000 x 26%)
Costs/Expenses (P484,800 x 26%)
Gross Profit (P43,200 x 26%)

To date
P 137,280
126,048
P 11,232

Recognized in
prior years
-

Recognized in
current year
P 137,280
126,048
P 11,232

20x4
Revenue (P540,000 x 74%)
Costs/Expenses (P492,000 x 74%)
Gross Profit (P48,000 x 74%)

To date
P 399,600
_364,080
P 35,520

Recognized in
prior years
P 137,280
_126,048
P
11,232

Recognized in
current year
P 262,320
238,032
P 24,288

20x5
Revenue (P540,000 x 100%)

To date
P 540,000

Recognized in
prior years
P 399,600

Recognized in
current year
P 140,400

Costs/Expenses (P492,000 x 100%)


Gross Profit (P48,000 x 100%)

_492,000
P 48,000

_364,080
P 35,520

_127,920
P 12,480

Alternatively, the gross profit recognized each year may also be computed as follows:
Contract price:
Initial amount of contract.......
Variation
Total contract price
Costs incurred each year.
Add: Costs incurred in prior years..
Actual costs incurred to date (1)...
Add: Estimated costs to complete
Total estimated costs (3)...
Estimated gross profit
Percentage of completion (1) / (3)...
Gross profit to date.
Less: Gross profit in prior years.
Gross profit in current year -% of completion
Gross profit in current year cost recovery
method

20x3

20x4

P528,000
_______P528,000
P126,048
_______P126,048
_358,752
P484,800
P 43,200
____26%
P 11,232
_______P 11,232

P528,000
__12,000
P540,000
P240,032
_126,048
P370,080
_121,920
P492,000
P 48,000
____74%
P 35,520
___11,232
P 24,288

P528,000
12,000
P540,000
P121,920
_370,080
P492,000
_______P492,000
P 48,000
___100%
P 48,000
__35,520
P 12,480

P 48,000

20x5

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


Percentage of Completion Method
20x3
1. To record costs incurred:
Construction
In
Progress*......
Materials
Inventory..
Cash, payables,
etc..

126,04
8

20x4
232,03
2

20x5
127,92
0

6,000
126,04
8

6,000
121,92
0

244,03
2

2. To record progress billings:


Accounts receivable..
Progress billings*.
.

144,00
0

240,00
0
144,00
0

156,00
0
240,00
0

156,00
0

3. To record collections:
Cash.....
Accounts
receivable
4. To recognize Revenue, Costs
and Gross Profit:
Construction
Expenses
Construction in Progress*..
....
Revenue from
Construction......
5. To close Construction In
Progress**
and Progress Billings account:
Progress
billings

120,00
0

228,00
0
120,00
0

126,04
8

192,00
0
228,00
0

238,03
2

11,232

127,92
0

24,288
137,28
0

192,00
0

12,480
262,32
0

140,40
0

540,00
0

Construction In
Progress.
* The term Contract account may alternatively be used.
** If Contract account is used then no entry is required for No. 5.

540,00
0

b. Input Measure Cost Recovery Method


The following table shows the data needed for further analysis:
20x3
Contract price:
Initial amount of contract...
Variation..
Total contract price..
Costs incurred each year
Add: Costs incurred in prior years.
Actual costs incurred to date....
Add: Estimated costs to complete..
Total estimated costs ...

20x4

P528,000
_______P528,000
P126,048
_______P126,048
____ _?
P
?

20x5

P528,000
__12,000
P540,000
P244,032
_126,048
P370,080
____ _?
P
?

P528,000
__12,000
P540,000
P121,920
_370,080
P492,000
_______P492,000

The revenue, expenses (costs) and profit will be recognized in profit or loss as follows:
20x3
Revenue*
Costs/Expenses
Gross Profit
* equivalent to costs incurred

To date
P 126,048
126,048
P
0

Recognized in
prior years
-

Recognized in
current year
P 126,048
126,048
P
0

20x4
Revenue*
Costs/Expenses
Gross Profit
* equivalent to costs incurred

To date
P 364,080
_364,080
P
0

Recognized in
prior years
P 126,048
126,048
P
0

Recognized in
current year
P 238,032
238,032
P
0

20x5

To date

Recognized in
prior years

Recognized in
current year

Revenue (P540,000 x 100%)

P 540,000

P 364,080

_492,000

364,080

127,920

P 48,000

Costs/Expenses (P492,000 x 100%)


Gross Profit (P48,000 x 100%)

P 48,000

P 175,200

Alternatively, the gross profit recognized each year may also be computed as follows:
Contract price:
Initial amount of contract.......
Variation
Total contract price
Costs incurred each year.
Add: Costs incurred in prior years..
Actual costs incurred to date ....
Add: Estimated costs to complete
Total estimated costs ....
Estimated gross profit.
Percentage of completion..
Gross profit to date.
Less: Gross profit in prior years.
Gross profit in current year...

20x3

20x4

P528,000
_______P528,000
P 126,048
_______P 126,048
____ _?
P
?
P
0
_
-___
P
0
_______P
0

P528,000
__12,000
P540,000
P244,032
_126,048
P370,080
____ _?
P
?
P
0
_
-___
P
0
_______P
0

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

20x5
P528,000
12,000
P540,000
P 121,920
_370,080
P492,000
_______P492,000
P 48,000
___100%
P 48,000
__
0
P 48,000

20x3

20x4

20x5

1. To record costs incurred:


Construction
In
Progress*......
Materials
Inventory..
Cash, payables,
etc..

126,04
8

238,03
2

127,92
0

6,000
126,04
8

6,000
121,92
0

244,03
2

2. To record progress billings:


Accounts receivable..
Progress billings*.
.

144,00
0

240,00
0
144,00
0

156,00
0
240,00
0

156,00
0

3. To record collections:
Cash.....
Accounts
receivable
4. To recognize Revenue, Costs
and Gross Profit:
Construction
Expenses
Construction in Progress*..
....
Revenue from
Construction......

120,00
0

228,00
0
120,00
0

126,48
0

192,00
0
228,00
0

238,03
2

127,92
0
48,000

126,48
0

238,03
2

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

Current Liability:
Payables (Payments on Account)

Progress billings
Less: Construction In Progress.
Gross
amount
due
to
customers

Construction In Progress

20x3
P 24,000

20x4
P 36,000

540,00
0

20x5
P

P399,600
_384,000
P 15,600
P
6,000

P144,000
_137,280
P

175,92
0

540,00
0

2. Due from/Due to Customers


a. Input Measure - Percentage of Completion Method
Current Asset:
Accounts receivable.
Other receivables:
Construction In Progress
Less: Progress billings.
Gross amount due from
customers...
Raw materials Inventory

192,00
0

6,720

Progress Billings

20x3 CI 126,048
Pr
11,232

144,000 20x3

end of x3 137,280
20x4 CI 238,032
Pr
11,232

144,000 end of x3
240,000 20x4

end of x4 399,600
20x5 CI 127,920
Pr
12,480

384,000 end of x4
156,000 20x5

540,000

540,000

540,000

540,000

where: CI - cost incurred each year


Pr - profit

b. Input Measure Cost Recovery Method


Current Asset:
Accounts receivable.
Raw materials Inventory

Current Liability:
Payables (Payments on Account)

Progress billings
Less: Construction In Progress.
Gross
amount
due
to
customers

20x3
P 24,000

20x4
P 36,000
P
6,000

P 137,280
_144,000

P384,000
_364,080

6,720

Construction In Progress

20x5
P

P 19,920

Progress Billings

20x3 CI 126,048
Pr
0

144,000 20x3

end of x3 126,048
20x4 CI 238,032
Pr
0

144,000 end of x3
240,000 20x4

end of x4 364,080
20x5 CI 127,920
Pr
48,000

384,000 end of x4
156,000 20x5

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)
Revenue
Less: Costs / Expenses...
Gross Profit.

20x3
P 137,280
_126,048
P
11,232

20x4
P 262,320
_238,032

20x5
P 140,400
_127,920

P 24,288

P 12,480

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


computation)
Revenue
Less: Costs / Expenses...
Gross Profit.

20x3
P 126,048
_126,048
P
0

20x4
P 238,032
_238,032
P
0

20x5
P 175,920
_127,920
P 48,000

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

2008:
Contract price
Actual cost to date

P2,500,000
P1,500,00
0
1,200,000

Estimated costs to complete


Total estimated project costs
Estimated loss, recognized in 2008

2,700,000
P
(200,000)

2009:
Contract price
Costs incurred:

P
2,500,000
In 2008
In 2008

Total cost
Total loss
Recognized in 2008
Recognized in 2009
Measure Cost Recovery Method
Loss in 20x4
Loss in 20x5

a.
Input

P1,500,00
0
1,300,000
2,800,000
P
(300,000)
(200,000)
P
(100,000)
P( 200,000)
P (100,000)

2. Journal Entries
a. Input Measure Percentage of Completion (Cost-to-Cost Method)

2008:
Construction in progress
Various credits

1,500,000
1,500,000

Accounts receivable
Billings on construction contract

1,200,000

Cash
Accounts receivable

1,000,000

Cost of construction
Construction in progress (loss)
Revenue from long-term contracts*
2009:
Construction in progress
Various credits

1,588,889

Accounts receivable
Billings on construction contract

1,300,000

Cash

1,500,000

Accounts receivable

Cost of construction
Construction in progress (loss)
Revenue from long-term
contracts**
Billings on construction contract
Construction in progress
(P1,500,000/P2,700,000)
** P2,500,000
1,388,889

1,200,000
1,000,000

1,300,000

200,000
1,388,889
1,300,000
1,300,000
1,500,000

1,211,111
100,000
1,111,111
2,500,000

2,500,000

*P2,500,000

Problem V
Item to compute
Total revenue recognized during 2009 (w):
CIP contains cost + gross profit = revenue, so w = P50
Gross profit recognized during 2009 (x): P50 P35 = P15
Billings on construction (y) : P14 + P 46 = P60
Net billings in excess of construction in progress (z): Billings of P60
CIP of P50
Calculate the percentage of PAC that was completed during 2009:
50/150 = 33.33%
Problem VI
Item to compute
Cash collected by KP on Cincy One during 2009. (P75 billings P10
A/R)
Actual costs incurred by KP on Cincy One during 2009 (P66 CIP P22
gross pofit)
At 12/31/2009, the estimated remaining costs to complete Cincy One
(44/{44 + x})(300 {44 + x}) = 22; x = 156

Answer
P50 million
P 15
million
P60million
P10 million
333.33%
Answer
P65 million
P44 million
P156
million

The percentage of Cincy One that wa completed during 2009 100 x


(44/ {44 + 156})
Problem VII
1.
Progress billings on construction contract
Less accounts receivable
Cash collected in 20x4

22%

P562,000
150,500
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
Contract price ...................
P250,000
P250,000
Current year costs ...............
110,000
120,000
Costs to date ....................
110,000
230,000
Estimated cost to complete .......
100,000
20,000
Estimated total cost .............
210,000
245,000
Estimated total gross profit .....
40,000
5,000
Percent complete .................
52%
94%
Revenue to date ..................
P130,000
P230,000

20x6
P250,000
15,000
245,000
0
240,000
5,000
100%
P250,000

20x4:

Revenue
Costs (110/210 x 210)
Gross profit

To Date
at Dec. 31
P130,000
110,000
P 20,000

20x5:

Revenue
Costs (230/245 x 245)
Gross profit (loss)

P235,000
230,000
P 5,000

P130,000
110,000
P 20,000

P105,000
120,000
P(15,000)

20x6:

Revenue
Costs
Gross profit

P250,000
245,000
P 5,000

P235,000
230,000
P 5,000

P 15,000
15,000
P
0

1.
2.
3.
4.
5.

Revenue recognized during


the year
Gross profit recognized during
the year
Balance in the construction in
progress account at Dec. 31 .
Balance in the progress
billings account at Dec. 31 .
Net (3-4) or (4-3) due from (due to)

20x4
P130,000
20,000

Previous
Years

Current
Year
P130,000
110,000
P 20,000

20x5
P100,000

20x6
P15,000

(15,000)

130,000

235,000

125,000
5,000

250,000
(15,000)

0
0

2. Cost Recovery Method


20x4

20x5

20x6

1.
2.
3.
4.
5.

Revenue recognized during


the year
Gross profit recognized during
the year
Balance in the construction in
progress account at Dec. 31 .
Balance in the progress
billings account at Dec. 31 .
Net (3-4) or (4-3) due from (due to)

P110,000

P120,000

P20,000
5,000

110,000

230,000

125,000
(15,000)

250,000
(20,000)

0
0

Problem IX
1. Percentage of Completion Method (Cost-to-cost Approach)
Contract price
Current year costs
Costs to date
Estimated cost to complete
Estimated total cost
Estimated total gross profit
Percent complete

2005
P250,000
150,000
150,000
90,000
240,000
10,000
63%

2006
P250,000
100,000
250,000
20,000
270,000
(20,000)
93%

2007
P250,000
15,000
265,000
0
265,000
(15,000)
100%

Revenue to date

P157,500

P232,500

P250,000

2005:

Revenue ............
Costs (150/240 x 240)
Gross profit ............

To Date
at Dec. 31
P157,500
150,000
P 7,500

2006:

Revenue ............
Costs ............
Gross profit (loss) ............

P232,500
252,500
P(20,000)

P157,500
150,000
P 7,500

P 75,000
102,500
P(27,500)

2007:

Revenue ............
Costs ............
Gross profit (loss) ............

P250,000
265,000
P(15,000)

P232,500
252,500
$(20,000)

P 17,500
12,500
P 5,000

20x4

20x5

20x6

1. Construction costs (expense)


recognized during the year
2. Gross profit recognized during
the year
3. Balance in the construction in
progress account at Dec. 31
(after closing entries)
4. Balance in the progress
billings account at Dec. 31 .
5. NNet (3-4) or (4-3) due from (due to)

Balance in accounts receivable


at Dec. 31 (after closing entries)

P150,000
7,500
157,500

Previous
Years

Current
Year
P157,500
150,000
P 7,500

P102,500
(27,500)
230,000*

110,00
0
47,50
0

230,00
0
0

10,000

10,000

P12,500
5,000
0
0
0

*P150,000 + 7,500 + 157,500 + 100,000 costs incurred during the year 27,500
loss
2. Cost Recovery Method
1. Construction costs (expense)
recognized during the year
2. Gross profit recognized during
the year
3. Balance in the construction in
progress account at Dec. 31
(after closing entries)
4. Balance in the progress
billings account at Dec. 31 .
5. NNet (3-4) or (4-3) due from (due to)

20x4
P150,000
0

20x5

20x6

P 80,000*

P20,000**

(20,000)

5,000

150,000

***230,000

110,00
0
40,00
0

230,00
0
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. b

5.

P1,200,000
x (P7,200,000 P4,800,000) = P600,000.
P4,800,000
P7,200,000 P4,875,000 =P2,325,000.

6.

a
20x4
P4,800,000
_______75%
P3,600,000
P3,400,000
P 200,000
_______-0P 200,000

Contract Price
x: Percentage-of-completion
Recognized Revenue to date
Less: Costs incurred to date
Gross Profit to date
Less: GP in prior year
Gross profit in current year
7.

8.

9.
10. c

P3,600,000
x (P8,400,000 P6,000,000) = P1,440,000.
P6,000,000
P8,400,000 P5,600,000 = P2,800,000.
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.

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. a
Contract Price
Less: Total Estimated Costs
Costs Incurred-1/10/x4 to 12/31/x5
Add: Estimated costs to complete
Less: Costs incurred to date
Multiplied by: % of completion
Gross Profit to date
Less: GP in prior year (given)
Gross profit in current year

P6,000,000
P3,600,000
1,200,000

4,800,000
P1,200,000
___3.6/4.8
P 900,000
___600,000
P 300,000

13. 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
14. c

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

15. d

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

16. b

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

17. c

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


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

18. b

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

P3,300,000

19. c

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

20. 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.

21.

P240,000 P100,000 = P140,000.

22.

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.

23.

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

24.

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

25. c

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

26. a

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


P6,325,000 + P575,000 = P6,900.000.

27. 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.
28.

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

29.

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

30. No answer available. 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.
31. b

(P9,600,000 45%)

(P9,000,000 15%)

= P2,970,000.

32. 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
33. d

728,000

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

34. c
Costs of construction
Construction in progress
Revenue for long-term contracts

1,200,000
800,000
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
35. a
Costs of construction
Profit
Construction In Progress
Less: Progress billings
Excess (Due from customers)

P1,200,000
800,000
P2,000,000
1,500,000
P 500,000

36. b
Costs of construction
Construction in progress
Revenue for long-term contracts

600,000
400,000
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
37. d
Costs of construction

1,200,000
1,2000,00
0

Revenue for long-term contracts

Under cost recovery method, revenue should be recognized up to the extent of costs
incurred.
38. b
Costs of construction
Profit
Construction In Progress
Less: Progress billings
Excess (Due to customers)

P1,200,000
0
P1,200,000
1,500,000
P( 300,000)

39. d
Costs of construction
Construction in progress
Revenue for long-term contracts

600,000
1,200,000
1,800,000

Under the cost recovery method, record equal amounts of revenue and cost until cost
recovered, and then record gross profit. In 2008, recorded revenue and cost of
P1,200,000, so record remaining cost of P600,000 and all gross profit of P1,200,000 in
2009.
40. a
20x4

20x5

Contract price

P 9,600,000

P10,080,00

Costs incurred to date

P 4,920,000

Add: Estimated cost to complete


Total estimated costs

4,920,000
P 9,840,000

P
8,640,000
2,160,000
P
10,800,000
P
(720,000)
100%
P (720,000)

Estimated Gross Profit (loss)


Multiply by: % of completion
Recognized Gross Profit (Loss) to date
Less: Gross Profit (Loss) in prior year
Recognized Gross Profit (Loss) in current year
% of Completion / Cost Recovery Method:
Construction in Progress

P(240,000
)
100%
P
(240,000)
_________
P
(240,000)

(240,000)
P
(480,000)

Progress Billings

CI

4,920,000

240,000 loss

5,280,000

CI

4,680,000
3,720,000

480,000 loss

5,280,000
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.
41. a

Input Measures: Efforts-Expended Method - using timbers laid


Year 2
Timers laid Each Year
300
Add: Timbers laid in Prior Years
150
Timbers laid to date
450
Add: Additional support timbers to be laid
520
Total Estimated Timbers
970
Percentage-of-Completion
45/97
x: CONTRACT PRICE
P 800,000
Recognized Revenue to Date
P 371,134
Recognized Revenue in Prior Years
Recognized Revenue in Current Yr.

Year 3
500
450
950
-0950
100%
P 800,000
P 800,000
371,134
P
428,866

Output Measures Number of trail feet


Trail feet Each Year
Add: Trail fees in Prior Years
Trail feet to date
Add: Additional trail feet to be constructed
Total Estimated Trail feet
Percentage-of-Completion
x: CONTRACT PRICE
Recognized Revenue to Date

Year 2
7,500
3,000
10,500
8,200
18,700
105/187
P 800,000
P 449,198

Year 3
8,000
10,500
18,500
___-018,500
100%
P 800,000
P 800,000

Recognized Revenue in Prior Years


Recognized Revenue in Current Yr.

449,198
P
350,802

42. d
Percentage of Completion:
Contract price..
Cost incurred each year.
Add: Cost incurred in prior year
Costs incurred to date
Add: Estimated costs to compute.
Total estimated costs.
Estimated gross profit
Multiply by: percentage of completion.
Recognized gross profit to date
Less: Recognized gross profit in prior
years
Recognized gross profit each year.

Project 6
P500,000
P375,000
_________
P375,000
________
P375,000
P125,000
100
%
P125,000
_________

Project 7
P700,000
P100,000
________
P100,000
400,000
P500,000
P200,000
20
%
P 40,000
_________

Project 8
P250,000
P100,000
________
P100,000
100,000
P200,000
P 50,000
50%

P125,000

P 40,000

P 25,000

Project 7
P100,000

Project 8
P100,000

100,000

100,000

P 25,000
_________

Cost Recovery Method of Construction Accounting:

Recognized Revenue....
Less: Costs of long-term construction
contract..
Recognized gross profit each year.

Project 6
P500,000
*
375,000
P125,000

* Since the contract is completed then the full amount of P500,000 contract price should be
recognized as revenue.

Percentage of Completion
Construction in Progress
Pr. 6 - Cl. 500,000 Pr. 6
375,000 Pr.
125,000
Pr. 7 Cl.
100,000
Pr.
40,000
Pr. 8. Cl
100,000
Pr.
100,000
765,000 500,000
12/31
(d)
265,000

Cost Recovery Method of Construction


Construction in Progress
Pr. 6 - Cl. 500,000 Pr. 6
375,000
Pr.
125,000
Pr. 7 CI
100,000
500,000
Pr. 8 CI
100,000 (d)
700,000
12/31
200,000

43. b
Contract price..
Cost incurred each year.

2006
P5,000,00
0

2007
P5,000,00
0

2008
P5,000,000
P2,050,00
0

Add: Cost incurred in prior year


Costs incurred to date

2,550,000
P4,600,000

P
100,000
-0-

900,000
P2,550,00
0
1,700,00
0
P4,250,00
0
P
750,000
60
%
P
450,000
100,000

P
100,000

P
350,000

P( 50,000)

P
900,000

Add: Estimated costs to complete


Total estimated costs.
Estimated gross profit
Multiply by: percentage of completion.
Recognized gross profit to date
Less: Recognized gross profit in prior
years
Recognized gross profit each year.
44.
45.
46.
47.

-0P4,600,000
P 400,000
100
%
P 400,000
450,000

d refer to No. 43
c refer to No. 18
d refer to No. 19
c
Contract price.
Cost incurred each year..
Add: Cost incurred in prior year.
Costs incurred to date..
Add: Estimated costs to complete
Total estimated costs.
Estimated gross profit (loss).
.
Multiply by: percentage of completion..
Recognized gross profit (loss) to date..
Less: Recognized gross profit in prior
years.
Recognized gross profit each year..

Prior year
P7,000,00
0

Current year
P7,000,000

P5,000,000
2,800,000
P7,800,000
(P 800,000)
P600,000

_____100%
(P 800,000)
___600,000
(P1,400,000)

48. 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..
GP in the current year
Less: Progress billings..

P 26,000,000
2,700,000
P 28,700,000
5,000,000

Due from customer (net).

P 23,700,000

49. c
Contract Price
Multiplied by: Gross Profit Rate
Estimated Gross Profit of the entire contract
Multiplied by: Percentage of Completion for first year
Gross Profit realized for current year

P100,000,000
_________25%
P 25,000,000
_________50%
P 12,500,000

50. c
10%

51. a

Contract Price
x: Mobilization Fee

P120,000,000

Collection in 20x4
Note: Billings for 20x4 will be collected in January 20x5.

P 12,000,000

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
Collections in 20x4

P 33.8 M

52. 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
.
2 True

.
3
.
4
.
5
.

6.

False

11.

False

16.

True

21
.

True

26.

31
.

7. False

12
.
13
.
14
.
15
,

True

17
.
18
.
19
.
20
.

False

22
.
23
.
24
.
25
.

False

27
.
28
.
29
.
30
.

32
.
33
.
34
.
35
.

True

8. False

False

9. True

False

10 False
,

36.

41.

37
.
38
.
39
.
40
.

42
.
43
.
44
.
45
.

a
c
d

d
c

False
True
False

True
False
True

False
False
b

c
b
a

b
d
c