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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.

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

Expected Gross profit 500,000 (100,000) (150,000)

Multiply: Completion percentage 62% 98% 100%

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:

2013
Contact Cost 200,000
Contract Liability 200,000
#

Contract Receivable 800,000

Contract Liability 800,000
#

Cash 600,000
Contract Receivable 600,000
#

Contract Liability 120,000

Contract Revenue 120,000
#

Cost of Construction 200,000

Contract Cost 200,000
#

2014
Cash 400,000
Contract Receivable 400,000
#

4. Prepare the journal entries in the year 2013 and 2014 under zero profit method.

Journal Entries:

2013
Contact Cost 200,000
Contract Liability 200,000
#

Contract Receivable 800,000

Contract Liability 800,000
#

Cash 600,000
Contract Receivable 600,000
#

Contract Liability 50,000

Contract Revenue 50,000
#

Cost of Construction 200,000

Contract Cost 200,000
#

2014
Cash 400,000
Contract Receivable 400,000