Accounting For Lonterm Constructions Contracts With Solutions

 

CHAPTER TEST Revenue Recogniton – Consructon Accountng

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1.

Atis Inc. has entered into a very profitable fixed price contract for constructing a high-rise building over a period of 3 years. It incurs the following following costs relating tto o the contract during the first year      

   

Cost of materials – P2,500,000 Site labor costs – P2,000,000 Agreed administrative costs as per contract to be reimbursed by the customer – P1,000,000 Depreciation of the plant used for the construction – P500,000 Marketing costs for selling apartments, whey they are ready – P1,000,000

Total estimated cost of the project – P18,000,000 SOLUTION: Cost of materials Site labor costs

P 2,500,000 P 2,000,000

administrative costs P 1,000,000 Depreciation of the plant P 500,000   P 6,000,000 / 18,000,000 = 0.33 or 1/3 % The percentage of completion of this contract at the year end is c. 25% 1 33

3 a. b. 27%

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2.

%

d. 39%

Banana Construction Inc. is executing a large project of constructing the tallest boarding house in the country. country. The project is expected to take three years to complete. The company has signed a fixed price contract of P12,000,000 for the construction of this boarding house. The details of the costs incurred to date in 2011 are: Site labor costs Costs of construction materials Depr De prec ecia iati tion on of spec special ial plan plantt and and equi equipm pmen entt used used in constructing the boarding house Marketing and selling costs to get the boarding house in the country the right exposure Total Total contract cost estimated to complete SOLUTION: Site Labor costs P 1,000,000 Costs of construction materials P 3,000,000 Depreciation during construction P 500,000 Costs incurred: P 4,500,000 add: est. costs to complete P 5,500,000

1,000,000 3,000,000 500,000 1,000,000 5,000,000 5,500,000

 

Total estimated costs

P 10,000,000

Percentage of completion (Cost Incurred / Total Total Estimated Costs) 4,500,000 / 10,000,000 = 0.45 Recognized revenue in 2011 (Fixed price x Percentage of completion) 12,000,000 x 0.45 = P 5,400,000 Costs to be recognized in 2011 (Total (Total estimated costs x Percentage of completion ) 10,000,000 x 0.45 = P 4,500,000 Fixed price contract P 12,000,000 Less: Total estimated costs P(10,000,000)   P 2,000,000 Multiply: Percentage of completion 45 % Gross profit (loss) to be recognized in 2011 P 900,000 Calculate the revenue and costs to be recognized in 2011 a. P5 P5,4 ,400 00,0 ,000 00 and and P4,50 P4,500, 0,00 000 0 c. P6,0 P6,000 00,0 ,000 00 a and nd P P4, 4,50 500, 0,00 000 0 b. P5 P5,4 ,400 00,0 ,000 00 and and P5,50 P5,500, 0,00 000 0 d. P6 P6,0 ,000 00,0 ,000 00 an and d P5, P5,50 500, 0,00 000 0  __A__

3.

Using the information in No. 2, calculate the gross profit (loss) to be recognized in 2011 a. P900,000 c. P1,500,000 b. (P100,000) d. (P900,000)

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4.

Chico Company signed an P800,000 contract to build an environmentally friendly access trail to España, Manila. The project was expected expected to take approximately 3 years. The following information was collected for each year of the project – 2010, 2011, 2012: Year

2010 2011 2012

Cost expended du duri ring ng the the year P100,000 150,000 250,000

Expected additional cost to completion P450,000 280,000 -0-

Support timbers laid during the year 150 300 500

Additional support ti timb mber ers s to be laid 850 520 -0-

Trail feet constructed duri during ng the the year 3,000 7,500 8,000

Additional trail feet to be constructed 15,200 8,200 -0-

  Comput Com pute e the amount amount of revenue revenue to be rec recogni ognized zed in 201 2012, 2, ass assume ume that the compa company ny employ emp loys s the effor efforts ts expend expended ed method method of est estima imatin ting g percen percentag tage e of com comple pletio tion n and the company measures its progress by the number of support timbers laid in the trail. SOLUTION:

Timbers land each year Add: Timber laid in prior year

2011

2012

300 150

500 450

 

Time laid to date Add: Additional support  support timbers to  to be laid Total estimated timber Percentage of completion x Contract price Revenue recognized to date Rev.. recognized in prior year Rev Recognized Revenue in 2012 a. P428,866 b. P422,640  __C__

5.

520 970 47/97 800,000 371,134

0 950 100% 800,000 800,000 371,134 428,866

Using the information in No. 4, compute the amount of revenue to be recognized in 2012, assume that the company employs an output measure method and the company measures its progress by the number of trail feet that have been completed.

2011

Trail feet constructed Add: Trail feet in prior year Trail feet to date Add: Additional feet to be constructed Total estimated trail feet Percentage of completion x Contract price Revenue recognized to date Rev.. recognized in prior year Rev Recognized Revenue in 2012

6.

950

c. P350,000 d. Ca Cann nnot ot be dete determ rmin ined ed

SOLUTION:  

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450

7,500 3,000 10,500 8,200 18,700 10,500/18,700 800,000 449,198

2012 8,000 10,500 18,500 0 18,500 100% 800,000 800,000 449,198 350,802

a. P428,864

c. P350,802

b. P422,640

d. Ca Cann nnot ot be dete determ rmin ined ed

Duhat Construction Company uses the percentage of completion method of accounting. During 2011, Duhat contracted to build an apartment house for Marian for P10,000,000. Duhat estimated that total costs would amount to P8,000,000 over the period of construction. In connection with this contract, Duhat incurred P1,000,000 of construction costs during 2011. Duhat billed billed and collected P1,500,000 P1,500,000 from Marian Marian in 2011. How much gross prof profit it should Duhat recognize in 2011? SOLUTION: 1M / 8M = 12.5% .125 10M x 12.5% = 1,250,000 8M x 12.5% = (1,000,000)  

P 250,000

 

a. P125,000 b. P187,500  __C__

7.

c. P250,000 d. P300,000

Eggplant Builders, Inc. has consistently used the percentage of completion method of accoun acc ountin ting g for construc constructio tion-t n-type ype contrac contracts. ts. During During 2011, Eggpla Eggplant nt sta starte rted d wor work k on a P9,000 P9, 000,00 ,000 0 fix fixeded-pri price ce constr construct uction ion contra contract ct tha thatt was compl complete eted d in 2012. 2012. Egg Eggpla plant’ nt’s s accounting records shows the following: Cumulative contract costs incurred Estimated total cost of completion

12/31/2011 3,900,000 7,800,000

12/31/2012 6,300,000 8,100,000

How much income would Eggplant have recognized on this contract for the year ended December 31, 2011? c. P600,000 a. P100,000 d. P700,000 b. P300,000 SOLUTION: 3,900 / 7,800 = 50% 9M x 50% = 4,500,000 7.8M x 50% = (3,900,000)    __A__

8.

P 600,000

Using the information in NO. 7, How much income would Eggplant have recognized on this contract for the year ended December 31, 2012? SOLUTION: Percentage of completion (Cost incurred / Total Total Est. Costs) 6,300,000 / 8,100,000 = 0.77 Fixed contract price P 9,000,000 Less: Total est. costs P (8,100,000) (8,100 ,000) P 900,000 Multiply: % of completion 0.77   P 700,000 Less: Income recognized Dec 31, 2011 P (600,000) Income recognized Dec 31, 2012 P 100,000 a. P100,000 b. P300,000

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9.

c. P600,000 d. P700,000

Fruit of the Loom Builders Construction contracted to construct a building for P400,000. Constructi Const ruction on began in 2011 and was complete completed d in 2012. Data relat relating ing to the contract are shown below:   Cost incurred Estimated total cost of completion

12/31/2011

12/31/2012

200,000 100,000

110,000 -0-

 

Fruit of the Loom uses Fruit uses the percenta percentage ge of com comple pletio tion n method method as the basis for inc income ome recognition. SOLUTION: Percentage of completion (Costs incurred / Total Total est. costs) 200,000 / 300,000 = 0.66 Fixed contract price x Costs incurred / T Total otal est. costs 400,000 x 200,000 / 300,000 = P 266,667 Revenue recognized recognized Dec 31, 2011 For the year ended December 31, 2011, The company should report recognized revenue of a. P-0c. P133,333 b. P66,667 d. P266,667  __C__

10 .

Using the information in No. 9, For the year ended December 31, 2012, The company should report recognized revenue of SOLUTION: Percentage of completion: 100 % Fixed contract price Less: Revenue recognized Dec 31, 2011 Revenue recognized Dec 31, 2012 a. P23,333 b. P90,000

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11 .

P 400,000 P (266,667) P 133,333 c. P133,333 d. P400,000

Guava Construction Company has consistently used percentage of completion method of recognizing income. During 2011, Guava started work on a P3,000,000 construction contract  which was completed in 2012. The accounting records showed the ffollowing ollowing data.   12/31/2011 12/31/2012 Progress Billings 1,100,000 1,900,000 Costs incurred each year 900,000 1,800,000 Collections 700,000 2,300,000 Estimated cost to complete 1,800,000 SOLUTION: Percentage of completion (Costs incurred / Total Total est. costs) 900,000 / 2,700,000 = 0.33 Cost incurred Add: Total est. costs to complete Total est. costs Contract Price

P 900,000 P 1,800,000 P 2,700,000 2,700,0 00 P 3,000,000

 

Less: Total est. costs P (2,700,000) (2,700 ,000)   P 300,000 Multiply: % of completion 0.33 Income recognized in 2011 P 99,999 or 100,000 How much income should Guava recognized in 2011? a. P100,000 c. P150,000 b. P110,000 d. P200,000  __D__

12 .

Using the information in No. 11, How much income should Guava recognized in 2012? SOLUTION: Contract price P 3,000,000 Less: Total est. costs P (2,700,000) (2,700 ,000)   P 300,000 Less: Income recognized in 2011 P (100,000) P 200,000 Income recognized in 2012

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13 .

a. P100,000

c. P150,000

b. P110,000

d. P200,000

Honey Dew Constructi Construction on Company Company has consisten consistently tly used the percentage of compl completion etion method met hod.. On Janua January ry 10, 2011, 2011, Honey Dew began work on a P6, P6,000 000,00 ,000 0 con constr struct uction ion contract. contra ct. At the ince inception ption date, date, the estimated estimated cost cost of cons construct truction ion was P4,500,00 P4,500,000. 0. The following data relate to the progress of the contract: Income recognized at 12/31/2011 Cost incurred 1/10/2011 – 12/31/2012 Estimated cost to complete at 12/31/2012 SOLUTION: Percentage of completion (Costs incurred / Total Total est. costs) 3,600,000 / 4,800,000 = 0.75 Cost incurred Add: Est. cost to complete Total estimated estimate d costs

P 3,600,000 P 1,200,000 P 4,800,000 4,800,0 00

Contact Price P 6,000,000 Less: Total Est. costs P (4,800,000) (4,800 ,000)   P 1,200,000 Multiply: % of completion 0.75   P 900,000 Less: Income recognized 12/31/2011 P (600,000) Income recognized Dec 31, 2012

P

300,000

600,000 3,600,000 1,200,000

 

How much income should Honey Dew recognize for the year ended December 31, 2012? a. P300,000 c. P600,000 b. P525,000 d. P900,000  __A__

14 .

Jackfruit Builders is in the bus business iness of constructing apartment buildings. Two Two building were in progress at the beginning of 2011. The status of these buildings at the beginning beginning of the year  were as follows: Contract

Contract Price

Apartment – Area E Apartment – Area C

1,620,000 2,520,000

Cost iin ncurred to 1/1/2011 600,000 1,560,000

Estimated cost to complete to 1/1/2011 840,000 690,000

  During 2011, the following costs were incurred: Apartment – Area E – P600,000 (estimated cost to complete as of 12/31/2011, P240,000) Apartment – Area C – P750,000 (job completed)  

 

SOLUTION: Year 2010   % of completion

Area E 600,000/1,440,000 = 0.41 0.41  

Area C 1,560,000/2,225,000 = 0.69

Costs incurred Add: Est. costs to comp Total est. costs

600,000 840,000 1,440,000

1,560,000 690,000 2,250,000

Contract price Less: Total est. costs

1,620,000 (1,440,000)

2,520,000 (2,250,000)

  Multiply: % of completion Revenue recognized 2010

180,000 (600,000/1,440,000) 75,000   75,000

Year 2011 % of completion

270,000 (1,560,000/2,225,000) 187,200

Area E

Area C

1,200,000/1,440,000= 0.83

Costs incurred Add: Est. costs to comp Total est. costs

1,200,000 240,000 1,440,000

Contract price

1,620,000

Job completed

1,560,000 750,000 2,310,000 2,520,000

 

Less: Total est. costs   Multiply: % of completion

(1,440,000) 180,000 (1,200,000/1,440,000) 150,000 Less: Revenue recognized 2010 (75,000) Revenue recognized 2011 75,000

(2,310,000) 210,000 100% 210,000 (187,200) 22,800

How much is the gross profit in 2011 if Jackfruit uses the percentage of completion method? a. P97,800 c. P262,000 b. P210,000 d. P360,000  __A__

15 .

During 201, Kamatsile Corporation started a construction job with a total contract price of P600,000. P600,0 00. Any co costs sts incurre incurred d are expecte expected d to be rrecove ecoverable. rable. The job job was co complet mpleted ed on December 14, 2012. Additional data are as follows: 12/31/2011 12/31/2012 Actual costs incurred 225,000 255,000 Estimated remaining costs 225,000 -0Billed to customer 240,000 360,000 Received from customer 225,000 375,000 Under the cost recovery method of constructi construction on accou accounting nting (zero-profit (zero-profit approach), what amount should Kamatsile recognized as gross profit for 2011? SOLUTION: Recognized revenue 225,000 Less: Costs incurred (225,000) Gross profit recognized for 2011 0 a. P-0b. P55,000

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16

Using the information in No. 15, Under the cost recovery method of construction accounting

.

(zero-profit approach), what amount should Kamatsile recognized as gross profit for 2012? SOLUTION: Contract price Less: Recognized Gross profit 2011 Recognized Revenue in 2012 Less: Cost incurred 2012 Gross Profit recognized 2012 a. P-0b. P55,000

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c. P75,000 d. P120,000

17

600,000 (225,000) 375,000 (255,000) P 120,000 c. P75,000 d. P120,000

The following data relate to a construction job started by Langka Construction Company

 

.

during 2011: Total contract price Actual costs during 2011 Estimated remaining costs Billed to customer during 2011 Received from customer during 2011

100,000 20,000 40,000 30,000 20,000

Any costs incurred incurred are expected expected to be recoverable. recoverable. Under the cos costt recovery me method thod of construction accounting (zero-profit approach), what amount should Langka recognize as gross profit for 2011:

SOLUTION: Revenue recognized 2011 20,000 Less: cost incurred (20,000) Gross profit recognized for 2011 0

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18 .

a. P-0-

c. P10,000

b. P4,000

d. P12,000

The Manggi Manggis s Constr Construct uction ion Corpor Corporati ation on uses uses the per percen centag tage e of com comple pletio tion n method method of recognizing recogn izing income income from long-term construct construction ion contracts. contracts. In 2010 Manggis entered into a fixed-price contract to construct construct a bridge for P30,000,000. Estimated costs to to complete and construction and contract costs incurred up to 2012 were as follows: As of 12/31/2010 2,000,000 16,000,000

Cumulative costs incurred Estimated costs to complete

12/31/2011 11,000,000 11,000,000

What is the percentage of completion during the year 2012? SOLUTION: 2011 cost incurred / total est. costs = 11,000,000 / 22,000,000 = 0.50 2012 cost incurred / total est. costs = 20,000,000 / 24,000,000 = 0.83 Percentage of completion in 2012 0.33 Costs incurred Add: Est. costs to complete Total est. costs

a. 25%

20,000,000 4,000,000 24,000,000 24,000, 000

c. 50%

12/31/2012 20,000,000 4,000,000

 

33

b.  __A__

19 .

1

%

83

3

d.

1

%

3

Using the information in No. 18, what is the gross profit on the project for 2012? SOLUTION: Contract price 30,000,000 Less: Total est. costs (24,000,000) (24,00 0,000) 6,000,000 Gross profit 2012 a. P6,000,000 b. P5,000,000

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20 .

c. P4,000,000 d. P1,000,000

Narra Builders & Construction Company started work on three job sites during the current year. Any costs incurred are expected expected to be recoverable. Data relating to the 3 jobs are as follows:

Contract price Costs incurred Estimated costs to complete Billings on construction contracts Collections on construction contracts

Bulacan 500,000

Cavite 700,000

Pampanga 250,000

375,000

100,000 400,000 100,000 100,000

100,000 100,000 150,000 100,000

500,000 500,000

What amount What amount of tot total al gross gross profit profit would would Narra Narra report report in its curren currentt yea year-en r-end d fin financ ancial ial statement if the company is using percentage of completion method? a. P100,000 c. P165,000 b. P125,000 d. P190,000 B

21 .

Using the information in No. 20, What amount of total gross profit would Narra report in its current year-end financial statement if the company is using cost recovery method? SOLUTION:   Recognize revenue Less: Cost incurred Recognized gross profit

Bulacan 500,000 375,000 125,000   125,000

a. P100,000 b. P125,000  _D _

22 .

Cavite 100,000 100,000 0

Pampanga 100,000 100,000 0

c. P165,000 d. P190,000

Using the information in No. 20, What would be the amount of construction in progress to be reported on the year statement of financial position if the cost recovery method is used? SOLUTION: Cost Recovery Method Bulacan CI 375,000

 

  Profit Cavite CI Pampanga CI Total Less: Recognized revenue Total CIP

125,000 100,000 100,000 700,000 500,000 200,000

a. P765,000 b. P700,000  _C__

23 .

c. P265,000 d. P200,000

Using the information in No. 20, What would be the amount of construction in progress to be reported on the year statement of financial position if the percentage of completion method is used? SOLUTION: Percentage of Completion SOLUTION: Percentage Bulacan CI 375,000   Profit 125,000 Cavite CI 100,000   Profit 40,000 Pampanga CI   Profit Total Less: Recognized Revenue Total CIP

100,000 25,000 765,000 500,000 P 265,000

a. P765,000 b. P700,000  __C__

24 .

c. P265,000 d. P200,000

Orange Construction Construction Company Company which commence commence during 2011 had the following data below relating to its construction jobs:

Contract price Costs incurred during 2011 Estimated costs to complete Billed to customers during 2011 Collections from customers during 2011 General and administrative expenses

Project A 420,000 240,000 120,000 250,000 240,000 20,000

Project B 300,000 280,000 70,000 290,000 280,000 10,000

It is therefore agreed between the contractor and the client that any costs incurred are expected to be recoverable. SOLUTION: Project A Project B a Contract price 420,000 300,000 b Cost incurred date 240,000 280,000

 

c Estimated cost to complete 120,000 70,000 d Total Total estimated cost (b + c) 360,000 350,000 e Total Total estimated gross profit (a – d) 125,000 200,000 f Percentage of completion (b ÷ d) 66.67% 80% Project A Revenue = CP x POC = 420,000 x 66.666% = 280,000 Less: Cost of revenue = TC x POC = 360,000 x 66.666% = 240,000 Gross profit 40,000 Project B Revenue = CP x POC = 300,000 x 80% = 240,000 Less: Cost of revenue = 350,000 x 80% = 280,000 Gross profit (40,000) Percentage of completion Recognized Gross profit project A 40,000 Recognized Gross profit project B (50,000) Gross / Profit (Loss) (10,000) Less: General and administrative expenses 30,000 Net loss (40,000) What amount of income (loss) (loss) would Orange report in its 2011 income statement using the percentage of completion method? a. (P10,000) c. (P40,000) b. (P30,000) d. (P80,000)  __D__

25 .

Using the information in No. 24, What amount of income (loss) would Orange report in its 2011 income statement using the cost recovery method?

SOLUTION: Recognized profit Project A Recognized profit Project B (50,000) Gross profit (Loss) (50,000) Less: General and administrative expenses 30,000 Net loss (80,000) a. (P30,000) b. (P50,000)  __D__

26 .

c. (P70,000) d. (P80,000)

Papaya Konstruction Business has the following data for large jobs in its Construction in Progress account: Project A

Project B

Project C

Project D

Project E

Total

 

Actual cost Estimated total cost Contact price

8,756,000 172,800,000

11,457,000 14,875,000

53,865,000 61,250,000

22,800,000 39,760,000

44,500,000 122,310,000

141,378,000 410,995,000

192,000,000

17,500,000

87,500,000

49,700,000

151,000,000

497,700,000

Percentage of completion

5%

75%

80%

55%

35%

The company accounts for its large jobs by the percentage of completion method – output measures. Billings are done as follows: 20% down payment upon contract signing Balance to be billed according to percentage of completion less an application of the down payment which is also according to percentage of completion.    

SOLUTION: Total billings made 20% down payment on contract price Project A 192,000 x 20% 38,400,000 Project B 17,500,000 x 20% 3,500,000 Project C 87,500 x 20% Project D 49,700,000 x 20% Project E 151,000,000 x 20% Total

17,500,000 9,940,000 30,200,000 P 99,540,000

How much total billings were made for the year? a. P2 P203 03,,28 286, 6,00 000 0 c. P120, 120,06 060, 0,00 000 0 b. P1 P172 72,,91 910, 0,00 000 0 d. P99,5 99,540 40,0 ,000 00  __A__

27 .

Using the information in No. 26, the total revenue that should be recognized for the year is SOLUTION: Project A 192,000,000 x 80% x 20% = 7,680,000 – (38,400M x 5%) =

5,760,000

Project B 17,500,000 x 80% x 75% = 10,500,000 – (3,500M x 75%) = 7,875,000 Project C 87,500,000 x 80% x 80% = 56,000,000 56,000,000 – (17,5000M x 80%) = 42,000,000 Project D 49,700,000 x 80% x 55% = 21,868,000 – (9,940M x 55%) = 16,401,000 Project E 151,000,000 x 80% x 35% = 42,280,000 – (30,300M (30,300M x 35%) = 31,710,000 P 203,286,000 Total billings made

a. P2 P203 03,,28 286, 6,00 000 0 b. P1 P172 72,,91 910, 0,00 000 0

 __C__

c. P120, 120,06 060, 0,00 000 0 d. P99,5 99,540 40,0 ,000 00

28

In 201, 201, Qua Quasha sha Builde Builders rs was contracte contracted d to bui build ld the privat private e roa road d net networ work k of Citivi Citiville lle

.

Subdivision for P100 million. The project was expected to be finished in 2 y years, ears, the contract provided for the following:

 

 

 

 

A 5% mobilization fee (to be deducted from the last billing) payable within 15 days from the contract signing A retention provision of 10% on all billings, payable with the final bill after the completed project is accepted Payment of progress billings within 7 days from acceptance.

Quasha Builders uses the percentage of completion method of accounting for income and estimates estima tes a 25% gross gross margin margin on the project project.. By the end of the year year,, Quasha Quasha Buil Builder ders s presented progress billings to Citiville Citiville corresponding to 50% completion. Citivlle accepted all the bills presented, except one for 10% which was accepted accepted on January 5 of next year year.. With the exception of the second to the last billing for 8% which was due o January 3 of next year, all accepted billings were settled. SOLUTION: Contract price 100,000,000 x Gross profit rate 25% Estimated gross profit 25,000 x percentage of completion 50% Realized gross profit P 12,50 12 ,500,0 0,000 00

700,00 0

29 .

In 2011, Quasha Builders realized gross profit from the project the amount of a. P7,500,000 c. P12,500, 00,000 b. P1 P10, 0,00 000, 0,00 000 0 d. P25,0 25,000 00,0 ,000 00   In 20 2011 11,, Rasp Raspbe berr rry y Buil Builde ders rs ag agre reed ed to cons constr truc uctt a comm commer erci cial al buildi building ng at a pric price e of P10,000,000. Raspberry Builders uses the percentage of completion completion method of recognizing revenue revenu e on long-term construct construction ion projects. projects. The data relating relating to the projects from 2011 – 2013 are as follows:

Cost incurred each year Estimated cost to complete

2011 2,800,000 5,200,000

2012 3,200,000 2,000,000

2013 1,850,000 -0-

Billings to date Collections of billings to date

1,500,000 1,200,000

4,000,000 3,200,000

10,000,000 9,400,000

SOLUTION:   2011 2012 2013 a. Contract price 10,000,000 10,000,000 10,000,000 b. Cost incurred to date 2,800,000 6,000,000 1,850,000 c. Estimated cost to complete 5,200,000 2,000,000 0 d. Total estimated cost (b + c) 8,000,000 8,000,000 1,850,000 e. Total estimated gross profit (a – d) 2,000,000 2,000,000 8,150,000 f. Percentage of completion (b ÷ d) 35% 75% 100% Revenue = TCP x POC = 10M x 35% = 3,500,000 Cost of revenue = TC x POC = 800,000 x 35% = 2,800,000 Gross profit = profit = 3,500,000 – 2,800,000 = P 700,000

 

What is the amount of gross profit to be recognized in 2011? a. P800,000 c. P850,000 b. P785,000 d. P900,000 A

30 .

Using the information in No. 29, What is the amount of gross profit to be recognized in 2012? SOLUTION: Revenue = TCP x POC = 10M x 75% = 7,500,000 Cost of revenue = TC x POC = 8,000,000 x 75% = 6,000,000 Gross profit = 7,500,000 – 6,000,000 = 1,500,000 Less: gross profit in prior year 700,000   P 800,000 a. P800,000 b. P785,000

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31 .

c. P850,000 d. P900,000

Using the information in No. 29, what is the balance of construction in progress net of contract billings account of Raspberry Builders’ December 31, 2012 statement of financial position? SOLUTION: Construction in progress 2011 CI 2,800,000   Profit 700,000 2012 CI 3,200,000   Profit 800,000 Total 7,500,000 Less: Billings to date 4,000,000 Total CIP P 3,500,000 a. P3,500,000 b. P3,000,000

 __A__

32 .

Using the information in No. 29, and assuming the company is using the cost recovery method of recognizing revenue from the project, what is the balance of construction in progress net of contract billings account of Raspberry Builders’ December 31, 2012 statement of financial position? a. P2,000,000 b. P2,500,000

 __D__

33 .

c. P5,500,000 d. P3,800,000

c. P3,500,000 d. P3,000,000

Santol Builders entered into a contract to construct an office building and a plaza at a contract price of P10,000,000. P10,000,000. Gross profit profit is to be recognize recognize using the percenta percentage ge of completio completion n method – output output measures as determine determined d by estimate estimates s made by the architect. architect. The data below summarized the activities on the construction for the years 2010 to 2012:

 

Year

Actual cost incurred

Estimated cost to complete

2010 2011 2012

3,200,000 4,300,000 1,550,000

6,000,000 1,600,000 -0-

Percentage complete (architect’s estimate) 25% 75% 100%

Progress billings

Collections

3,300,000 4,500,000 2,200,000

3,100,000 4,000,000 2,900,000

SOLUTION: Contract price Less: Total estimated costs Cost incurred Add: Cost incurred in prior year Total estimated cost Estimated gross profit x percentage of completion Recognized gross profit Less: Recognize profit in prior year

2010 10M

2011 10M

2012 10M

3.2M

4.3M 3.2M 9.1M 900,000 75% 675,000 200,000

1,550,000 7.5M 9,050,000 950,000 100% 950,000 675,000

475,000

275,000

9.2M 800,000 25% 200,000

Total Gross Profit

200,000

Compute the recognized gross profit – proportional cost approach for the year 2010 2011 2012 a. 200,000 675,000 950,000 b. 278,261 463,497 208,242 c. 278,261 741,758 950,000 d. 200,000 475,000 275,000  __B__

34 .

Using the information in No. 33, what is the recognized revenue – proportional cost approach for the year? SOLUTION:   Contract price x Percentage of completion Recognized revenue Less: Revenue in prior year Recognized revenue

a. b. c. d.  __A__

35

2010 2,500,000 2,500,000 3,478,261 3,478,261

2011 750,000 5,000,000 4,763,497 8,241,258

2010 10M 25% 2.5M 2,500,000

2011 10M 75% 7.5M 2.5M 5,000,000

2012 10M 100% 10M 7.5M 2,500,000

2012 10,000,000 2,500,000 1,758,242 10,000,000

Using the information in No. 33, what is the recognized revenue – actual cost approach for

 

.

the year? SOLUTION:   2010 Cost incurred 3.2M Add: Gross profit 200,000 Recognized revenue  revenue  3,400,000

a. b. c. d.  __D__

36 .

2010 3,400,000 2,500,000 3,400,000 2,500,000

2011 4,775,000 5,000,000 5,000,000 4,775,000

2011 4.3M 475,000 4,775,000

2012 1,550,000 275,000 1,825,000

2012 1,825,000 2,500,000 1,825,000 2,500,000

Using the information in No. 33, compute the construction in progress (net of progress billings) on December 31, 2011. SOLUTION: Construction in progress 2010 CI Profit 2011 CI Profit Total

3,200,000 200,000 4,300,000 475,000 8,175,000

Progress Billings 2012 CI 3,300,000 2011 CI 4,500,000 Total 7,800,000 Construction in progress

8,175,000

Less: Progress billings Excess of cost & profit over billings

7,800,000 P 375,000

a. P720,019 b. P575,000  __B__

37 .

c. P441,758 d. P375,000

On April 1, 2012, Tamarind Tamarind Builders entered into a cost-plus-fixed-fee contract to construct an electric generator for Mr. Sy. Sy. At the contract date, Tamarind Tamarind estimated that it would take two years to complete the project at a cost cost of P2,000,000. The fixed fee stipulated in the contrac contractt is P300,000. Tamarind amarind appropriately appropriately accounts accounts for this contract using the percentage percentage of completion method. During 2012, Tamarind incurred costs of P700,000 related to the project and estimat estimated ed cost to complet complete e as of December December 31, 2012 is P1,400 P1,400,00 ,000. 0. Sy was bille billed d P500,000 P500,0 00 under the contract. contract. The gross profi profitt to be recog recognized nized by T Tamari amarind nd under the contract on December 31, 2012 is:

 

SOLUTION: CI / Total Estimated Cost = 700,000 700,000 x 1.4 M = 33.33…% x 300,000 = P 100,000 c. P200,000 d. P300,000

a. P-0b. P100,000  ____

38 .

Goodhaven Goodha ven Constr Construct uction ion Compan Company y recogni recognized zed gro gross ss profit profit of P31,50 P31,500 0 on its long-t long-term erm project that has accumulated costs of P61,250. To finish the project, the company estimates that it has to incur additional cost cost of P122,500. Billings were made 40% of the cont contract ract price. What is the balance of the Construction in Progress account net of billings? a. P1 P18, 8,50 500 0 curre current nt liabi liabili lity ty c. P50, P50,050 050 c cur urren rentt li liabi abili lity ty b. P1 P18, 8,55 550 0 cur curre rent nt as asse sett d. P5 P50, 0,050 050 curre current nt asse assett

 __B__

39 .

Citihomes Realty Inc. uses the percentage of completion method of recognizing gross profit on long-term constructi construction on contract contracts. s. The company started started work on two contra contracts cts during 2011. Data relating to the two contracts contracts are shown below: below: Contract price Contract 1 Contract 2

1,800,000 1,350,000

Actual cost 12/31/2011 450,000 262,500

Estimated Estima ted cos costt to complete 450,000 487,500

In 2012, contract 3 was started for a contract contract price of P2,700,000. As of December 31, 2012, the following data are available:

Contract 1

Actual cost 1/1/2011 – 12/31/2012 840,000

Estimated cost to complete 210,000

Contract 2 Contract 3

540,000 540,000

360,000 960,000

SOLUTION: Contract 1 2011 450,000 + 450,000 = 900,000 450,000 / 900,000 = 50% 1,800,000 x 50% = 900,000 900,000 x 50% = 450,000   Contract 2 2011 262,500 + 487,500 = 750,000

2012 840,000 + 210,000 840,000 / 1,050,000 = 80% 1,800,000 x 1,050,000 = 750,000 750,000 x 80% = 600,000 600,000 x 450,000 = 150,000

2012 540,000 + 360,000 = 900,000

 

262,500 / 750,000 = 35% 1,350,000 x 750,000 = 600,000 600,000 x 35% = 210,000  

540,000 / 900,000 = 60% 1,350,000 x 900,000 = 450,000 450,000 x 60% = 270,000 270,000 x 210,000 = 60,000

Contract 3 2012 540,000 + 960,000 = 1,500,000 540,000 / 1,500,000 = 36% 2,700,000 x 1,500,000 = 1,200,000 1,200,000 x 36% = 432,000 150,000 + 60,000 + 432,000 = 642,000 How much income is to be recognized in 2012? c. P432,000 a. P1,302,000 b. P642,000 d. P270,000  __B__

40

Using the information in No. 39, what is the balance of the construction in progress account

.

as of December 31, 2012?

SOLUTION:   Contract 1 CI 840,000 GP 150,000 990,000

Contract 2 540,000 60,000 600,000

Contract 3 540,000 432,000 972,000 = 2,562 C1 2011 450,000 C2 2012 210,000 = P 3,222,000

a. P3,942,000

c. P2,562,000

b. P3,222,000

d. P1,920,000