Multiple choice problems

21 Lark Corp. has contract to construct a P5,000,000 cruise ship at an estimated cost of
P4,000,000. The company will begin construction of the cruise ship in early January
20x4 and expects to complete the project sometime in late 20x7. Lark corp. has
never constructed a cruise ship before, and the customer has never operated a cruise
ship. Due to this and other circumstances, Lark corp. believes there are inherent
hazards in the contract beyond the normal, recurring business risks. Lark corp.
expects to recover all its costs under the contract. During 20x4 and 20x5, the
company has the following activity:
20x4 20x5
Costs to date P 980,000 P 2,040,000
Estimated costs to complete 3, 020,000 1,960,000
Progress billings during the year 1,000,000 1,000,000
Cash collected during the year 648,000 1,280,000

For the year ended December 31, 20x5, how much revenue should Lark corp. recognize
on its income statement?
a P980,000 c P1,300,000
b P2,040,000 d P1,060,000

22 Lark Corp. has contract to construct a P5,000,000 cruise ship at an estimated cost of
P4,000,000. The company will begin construction of the cruise ship in early January
20x4 and expects to complete the project sometime in late 20x7. Lark corp. has
never constructed a cruise ship before, and the customer has never operated a cruise
ship. Due to this and other circumstances, Lark corp. believes there are inherent
hazards in the contract beyond the normal, recurring business risks. Lark corp.
expects to recover all its costs under the contract. During 20x4 and 20x5, the
company has the following activity:
20x4 20x5
Costs to date P 980,000 P 2,040,000
Estimated costs to complete 3, 020,000 1,960,000
Progress billings during the year 1,000,000 1,000,000
Cash collected during the year 648,000 1,280,000

On its statement of financial position at December 31, 20x5, what amount will be reported
to the Construction in process account?
a. P40,000 costs in excess of billings
b. P1,020,000 costs in excess of billings
 c. P40,000 billings in excess of costs
d. P20,000 billings in excess of costs

23 Lark Corp. has contract to construct a P5,000,000 cruise ship at an estimated cost of
P4,000,000. The company will begin construction of the cruise ship in early January
20x4 and expects to complete the project sometime in late 20x7. Lark corp. has
never constructed a cruise ship before, and the customer has never operated a cruise
ship. Due to this and other circumstances, Lark corp. believes there are inherent
hazards in the contract beyond the normal, recurring business risks. Lark corp.
expects to recover all its costs under the contract. During 20x4 and 20x5, the
company has the following activity:
20x4 20x5
Costs to date P 980,000 P 2,040,000
Estimated costs to complete 3, 020,000 1,960,000
Progress billings during the year 1,000,000 1,000,000
Cash collected during the year 648,000 1,280,000

On its statement of financial position at December 31, 20x5, what amount will be reported
for accounts receivable?
a. P352,000 c. P72,000
b. P720,000 d. P2,000,000

24 For a construction firm using rge cost recovery 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. Current asset of P200,000
b. current liability of P200,000
c. current asset of P1,000,000 less a contra-current asset of P800,000
d. current asset of P1,000,000 less a contra-current liability of P800,000

25 The key largo company uses the percentage of completion method to recognize profits on
long-term contracts. At the end of the second year of the contract, a project was 70%
complete and an overall loss of P100,000 was expected. A P20,000 profit had been recognized
in the first year of the contract. The loss to be recognized in the second year is:
a 70,000 d 120,000
b 80,000 e none of these
c 100,000

26 Hiser Builders, Inc. is using the cost recovery method for a P5,600,000 contract that will
take two years to complete. Data at December 31, 20x4, the end of the first year, are as
follows:
 Costs incurred to date P2,560,000
Estimated costs to complete 3,280,000
Billings to date 2,400,000
Collections to date 2,000,000

The gross profit or loss should be recognized for 20x4 is

a 0 c 120,000 loss
b 240,000 loss d 105,600 loss

27 Lake 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 P600of gross profit has been recognized in prior years. Information for current
year is as follows:
Total cost incurred through current year P5,000
Estimated costs remaining at the end of current year 2,800

What is the loss that Lake recognize in the current year?

a 600 c 1,400
b 800 d No loss should be recognized

Use the following information for questions 28 to 31:

Seasons construction is constructing an office building under contract for Canon Cafe.
The contract calls for progress billings and payments of P620,000 each quarter. The total
contract price is P7,440,000 and Seasons estimates total costs of P7,100,000. Seasons
estimates that the building will take 3 years to complete, and commences construction on
January 2,20x4.

28 At December 31,20x4, Seasons estimates that it is 30% complete with construction, based
on costs incurred. What is the total amount of revenue from Long-term contracts recognized
for 20x4 and what is the balance in the accounts receivable account assuming cannon cafe
has not yet made its last quarterly payment?

Revenue Accounts receivable Revenue Accounts receivable

a P2,480,000, P2,480,000 c P2,232,000, P620,000
b P2,130,000, P620,000 d P2,130,000, P2,480,000

29 At December 31, 20x5, Seasons construction estimates that it is 75% complete with the
building; however, the estimate of total costs to be incurred has risen to P7,200,000 due
to unaticipated price increases. What is the total amount of construction expenses that
Seasons will recognize for the year ended December 31, 20x5?
a 5,400,000 c 3,195,000
 b 3,150,000 d 3,270,000

30 At December 31, 20x5, Seasons construction estimates that it is 75% complete with the
building; however, the estimate of total costs to be incurred has risen to P7,200,000 due
to unaticipated price increases. What is reported in the balance sheet at December 31,20x5
for seasons as the difference between the construction process and the billings on construction
in process accounts, and is it a debit or a credit?

Difference between the accounts Debit/Credit

a 1,690,000 Credit
b 620,000 Debit
c 440,000 Debit
d 620,000 Credit

31 Seasons construction complete the remaining 25% of the building construction on December
31, 20x6, as scheduled. At that time the total costs of construction are P7,500,00. What is
the total amount of revenue from long term contracts and construction expenses that Seasons
will recognize for the year ended December 31,b20x6?

Revenue Expense
a 7,440,000 ###
b 1,860,000 ###
c 1,860,000 ###
d 1,875,000 ###

The following information relates to questions 32 and 33

Cooper construction company had a contract starting April 20x4, to construct a P9,000,000
building that is expected to be completed in September 20x6, at an estimated cost of
P8,250,000. At the end of 20x4, the costs to date were P3,795,000 and the estimated total
costs to complete had not changed. The progress billings during 2010 were P1,800,000 and
the cash collected during 20x4 was 1,200,000.

32 For the year ended December 31, 20x4, Cooper would recognized gross profit on the building
of:
a 316,250 c 405,000
b 345,000 d 0

33 At December 31, 20x4, Cooper would report construction in process in the amount of:
a 345,000 c 4,140,000
b 3,795,000 d 3,540,000
 34 During 20x4, Gates corp. started a construction job with a total contract price of P3,500,00.
The job was completed on December 15, 20x5. Additional data are as follows:
20x4 20x5
Actual costs incurred 1,350,000 1,525,000
Estimated remaining costs 1,350,000 -
Billed to customer 1,200,000 2,300,000
Received from customer 1,000,000 2,400,000

Under the cost recovery method, what amount should Gates recognize as gross profit for
20x5?
a 225,000 c 475,000
b 312,000 d None of the above

Use the following information relates to questions 35 and 36:

In 20x4, Fargo corporation began construction work under a three year contract. The contract
price is P2,400,000. Fargo uses the percentage of completion method for dinancial 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 statement presentations
relating to this contract at December 31, 20x4, follow:

Balance sheet:
Accounts receivable - construction contract 100,000
billings 300,000
construction in progress 240,000 60,000
Less: Contract billings

Income statement:
Income (before tax) on the contract recognized
in 20x4 60,000

35 How much cash was collected in 20x4 on this contract?

a 100,000 c 20,000
b 140,000 d 240,000

36 What was the initial estimated total income before tax on this contract?
a 300,000 c 400,000
b 320,000 d 480,000

Use the following information for question 37 and 38

Eilert construction company had a contract starting April 20x4, to construct a P15,000,000
building that is expected to be completed in September 20x5, at an estimated cost of
 P13,750,000. At the end of 20x4, the costs to date were P6,325,000 and the estimated total
costs to complete had to changed. The progress billings during 20x4 were P3,000,000 and the
cash collected during 20x4 was P2,000,000. Eilert uses the percentage of completion method.

37 For the year ended December 32, 20x4, Eilert would recognize gross profit on the building of
a 0 c 575,000
b 527,083 d 675,000

38 At December 31, 20x4, Eilert would report construction in process in the amount of
a 6,900,000 c 5,900,000
b 6,325,000 d 575,000

39 Belgium Co. is constructing a tunnel for P800 million. Construction began in 20x4 and is estimated
to be completed in 20x8. At December 31, 20x6, Belgium has incurred costs totaling P356
million with P85 million of that incurred in 20x6, P143 million inb20x5, and theremainder during
20x4. Belgium believes that it completed 30% of the tunnel during 20x6, although that may change
based on future activity. Belgium Co. uses PAS 11 for its accounting and regards its cost number
as very uncertain (cost recovery method/zero profit approach). What amount of revenue
should Belgium Co. recognize for the year ended December 31, 20x6?
a No revenue should be recognized until the contract is completed in 20x8
b 356 million
c 240 million
d 85 million

40 Wynn, Inc. has a contract to construct a large hotel for P12,000,000. The contract was signed
on January 2, 20x4 and it was expected that the hotel would be complete on December 31, 20x7.
At the date the contract was signed, Wynn, Inc. anticipated the costs of construction would total
P11,000,000. At the end of 20x5 the total cost estimate rose to P11,870,000 and at the end
of 20x6 the total cost estimate rose to P12,000,000. Due to certain circumstances, Wynn, Inc.
believes there are inherent hazards in the contract beyond the normal, recurring business risks.
Wynn, Inc. expects to recover all its costs under the contract. Under these conditions, what
amount of loss, if any, should Wynn, Inc. recognize in each of the following years?

20x5, 20x6 20x5, 20x6

a 870,000, 400,000 c 870,000, 530,000
b 0, 400,000 d 0, 0
be reported
 be reported

s on some

f P800,000
of P800,000

ze profits on

d been recognized

ear, are as
uld be recognized

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cts recognized
g cannon cafe

counts receivable

P2,480,000
ember 31,20x5
gs on construction

n on December
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ses that Seasons

a P9,000,000

stimated total
1,800,000 and

it on the building
 of P3,500,00.

oss profit for

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ancial accounting
of costs incurred
resentations

P15,000,000
estimated total
,000,000 and the
mpletion method.

n the building of

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remainder during
ugh that may change
ards its cost number

mpleted in 20x8

tract was signed

December 31, 20x7.
ruction would total
and at the end
nces, Wynn, Inc.
ng business risks.
nditions, what