General Instructions: Follow instructions in each item accordingly. For percentage of completion ratios, use the exact rates.
The Power Construction Company was the lowest bidder on a specialized equipment contract. The contract bid was P6,000,000 with an estimated cost to complete the project of P5,300,000. The contract period was 33 months, beginning January 1, 2011. The company uses the cost-to-cost method to estimate profits.
A record of construction activities for the years 2011-2014 follows:
Year Actual Costs-Current Year Progress Billings Cash Receipts
2011 P 3,400,000 P 3,200,000 P 3,000,000 2012 2,550,000 2,000,000 2,000,000 2013 200,000 800,000 600,000 2014 -0- -0- 400,000
The estimated cost to complete the contract at the end of each accounting period is:
2011 P 2,100,000 2012 150,000 2013 -0-
Requirements:
1. Compute the gross profit or loss for the year under percentage of completion method. 2011: P309,091 2012: P(409,091) 2013: P259,091
2011 2012 2013
Contract price 6,000,000 6,000,000 6,000,000
Cost Incurred per year 3,400,000 2,550,000 200,000
Cost incurred to date 3,400,000 5,950,000 6,150,000
Estimated additional cost 2,100,000 150,000 -
Total estimated cost 5,500,000 6,100,000 6,150,000
Expected Gross profit 500,000 (100,000) (150,000)
Multiply: Completion percentage 62% 98% 100%
Gross profit to date 309,091 (100,000) (150,000)
(Gross Profit in prior years) - 309,091 (409,091)
Gross profit for the year 309,091 (409,091) 259,091
2. Compute the gross profit or loss for the year under zero profit method. 2011: 0 2012: 0 2013: P(150,000)
2011 2012 2013
3,400,00 2,550,00 50,0 Revenue 0 0 00 3,400,00 2,550,00 200,00 Cost incurred per year 0 0 0 (150,00 Gross profit for the year - - 0)
3. Prepare the journal entries in the year 2013 and 2014 under percentage of completion method. Journal Entries:
