solution chapter 8

Chapter 8Problem I1. Input Measure - Percentage of Completion Method (Cost to Cost Method)

2008:Contract price P

1,800,000Actual costs to date P 450,000Estimated costs to complete

1,200,000

Total estimated project costs

1,650,000

Estimated total gross profit 150,000Percentage of completion:P450,000 / P,1650,000 27.27%Gross profit recognized P 40,905

2009: P 1,800,000

Contract priceCosts

incurred:2008 P 450,002009 1,100,000

Total cost 1,550,000Total gross profit 250,000Recognized in 2008 40,905Recognized in 2009 P 209,095

2. Input Measure - Cost Recovery Method2008: (all costs not yet recovered) P -0-2009:Contract price 1,800,00Costs incurred: 2008 P 450,000

2009 1,100,000Total cost 1,550,000Total gross profit P 250,000

Problem II1. Input Measure - Percentage of Completion Method (Cost to cost Method)

Years Gross Profit (or Loss) recognized

Supporting computations

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 MethodYears Gross Profit (or Loss) Supporting computations2008 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 III1. Journal Entries a. Input Measure – Percentage of completion – (cost-to-cost method) The following analysis is to determine the percentage of completion:

20x3 20x4 20x5Contract price: Initial amount of contract…………... P528,000 P528,000 P528,000 Variation……………………………….. _______- __12,000 __12,000

Total contract price…………………….. P528,000 P540,000 P540,000Costs incurred each year……………… P 126,048 *P244,032 P121,920Add: Costs incurred in prior years……. _______- _126,048 _370,080Actual costs incurred to date (1)…..… P126,048 *P370,080 P492,000Add: Estimated costs to complete….. _358,752 _121,920 _______-Total estimated costs (3)……..………… P484,800 P492,000 P492,000Estimated gross profit…………………… P 43,200 P 48,000 P 48,000Percentage of completion (1) / (3) 26% **74% 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 To dateRecognized in

prior yearsRecognized in current year

Revenue (P528,000 x 26%) P 137,280 - P 137,280Costs/Expenses (P484,800 x 26%) 126,048 - 126,048Gross Profit (P43,200 x 26%) P 11,232 - P 11,232



Revenue (P540,000 x 74%) P 399,600 P 137,280 P 262,320Costs/Expenses (P492,000 x 74%) _364,080 _126,048 238,032Gross Profit (P48,000 x 74%) P 35,520 P 11,232 P 24,288



Revenue (P540,000 x 100%) P 540,000 P 399,600 P 140,400Costs/Expenses (P492,000 x 100%) _492,000 _364,080 _127,920 Gross Profit (P48,000 x 100%) P 48,000 P 35,520 P 12,480

Alternatively, the gross profit recognized each year may also be computed as follows:20x3 20x4 20x5

Contract price: Initial amount of contract…………....... P528,000 P528,000 P528,000 Variation…………………………………… _______- __12,000 12,000Total contract price………………………… P528,000 P540,000 P540,000Costs incurred each year…………………. P126,048 P240,032 P121,920Add: Costs incurred in prior years……….. _______- _126,048 _370,080Actual costs incurred to date (1)…..……. P126,048 P370,080 P492,000Add: Estimated costs to complete……… _358,752 _121,920 _______-Total estimated costs (3)……..……………. P484,800 P492,000 P492,000Estimated gross profit……………………… P 43,200 P 48,000 P 48,000Percentage of completion (1) / (3)……... ____26% ____74% ___100%Gross profit to date…………………………. P 11,232 P 35,520 P 48,000Less: Gross profit in prior years……………. _______- ___11,232 __35,520Gross profit in current year -% of completion P 11,232 P 24,288 P 12,480Gross profit in current year –cost recovery method P 0 P 0 P 48,000

Following are the entries for the years 20x3 to 20x5: Percentage of Completion Method

20x3 20x4 20x51. To record costs incurred: Construction In Progress*………......

126,048

232,032

127,920

Materials 6,000 6,000

Inventory………………….. Cash, payables, etc……………..

126,048

244,032

121,920

2. To record progress billings: Accounts receivable………………..

144,000

240,000

156,000

Progress billings*.………………….

144,000

240,000

156,000

3. To record collections: Cash………………………………….....

120,000

228,000

192,000

Accounts receivable……………

120,000

228,000

192,000

4. To recognize Revenue, Costs and Gross Profit: Construction Expenses………………

126,048

238,032

127,920

Construction in Progress*..……….... 11,232 24,288 12,480 Revenue from Construction......

137,280

262,320

140,400

5. To close Construction In Progress** and Progress Billings account: Progress billings………………………

540,000

Construction In Progress……….

540,000

* The term “Contract account” may alternatively be used.** If “Contract account” is used then no entry is required for No. 5.

b. Input Measure – Cost Recovery Method The following table shows the data needed for further analysis:

20x3 20x4 20x5Contract price: Initial amount of contract…………... P528,000 P528,000 P528,000 Variation……………………………….. _______- __12,000 __12,000Total contract price…………………….. P528,000 P540,000 P540,000Costs incurred each year……………… P126,048 P244,032 P121,920Add: Costs incurred in prior years……. _______- _126,048 _370,080Actual costs incurred to date……....… P126,048 P370,080 P492,000Add: Estimated costs to complete….. ____ _? ____ _? _______-Total estimated costs ….……..………… P ? P ? P492,000

The revenue, expenses (costs) and profit will be recognized in profit or loss as follows:



Revenue* P 126,048 - P 126,048Costs/Expenses 126,048 - 126,048Gross Profit P 0 - P 0

* equivalent to costs incurred



Revenue* P 364,080 P 126,048 P 238,032Costs/Expenses _364,080 126,048 238,032Gross Profit P 0 P 0 P 0

* equivalent to costs incurred



Revenue (P540,000 x 100%) P 540,000 P 364,080 P 175,200Costs/Expenses (P492,000 x 100%) _492,000 364,080 127,920 Gross Profit (P48,000 x 100%) P 48,000 P 0 P 48,000

Alternatively, the gross profit recognized each year may also be computed as follows:20x3 20x4 20x5

Contract price: Initial amount of contract…………....... P528,000 P528,000 P528,000 Variation…………………………………… _______- __12,000 12,000Total contract price………………………… P528,000 P540,000 P540,000Costs incurred each year…………………. P 126,048 P244,032 P 121,920Add: Costs incurred in prior years……….. _______- _126,048 _370,080Actual costs incurred to date ……...……. P 126,048 P370,080 P492,000Add: Estimated costs to complete……… ____ _? ____ _? _______-Total estimated costs …….…..……………. P ? P ? P492,000Estimated gross profit………………………. P 0 P 0 P 48,000Percentage of completion……………….. _ -___ _ -___ ___100%Gross profit to date…………………………. P 0 P 0 P 48,000Less: Gross profit in prior years……………. _______- _______- __ 0Gross profit in current year………………... P 0 P 0 P 48,000

Following are the entries for the years 20x3 to 20x5:20x3 20x4 20x5

1. To record costs incurred: Construction In Progress*………......

126,048

238,032

127,920

Materials Inventory………………….. 6,000 6,000 Cash, payables, etc……………..

126,048

244,032

121,920

2. To record progress billings: Accounts receivable………………..

144,000

240,000

156,000

Progress billings*.………………….

144,000

240,000

156,000

3. To record collections: Cash………………………………….....

120,000

228,000

192,000

Accounts receivable……………

120,000

228,000

192,000

4. To recognize Revenue, Costs and Gross Profit: Construction Expenses………………

126,480

238,032

127,920

Construction in Progress*..……….... 48,000 Revenue from Construction......

126,480

238,032

175,920

5. To close Construction In Progress** and Progress Billings account: Progress billings………………………

540,000

Construction In Progress……….

540,000

* The term “Contract account” may alternatively be used. ** If “Contract account” is used then no entry is required for No. 5. 2. Due from/Due to Customers a. Input Measure - Percentage of Completion Method Current Asset:

20x3 20x4 20x5Accounts receivable………………………. P 24,000 P 36,000 P -Other receivables: Construction In Progress………………… P399,600 Less: Progress billings……………………. _384,000 Gross amount due from customers…... P 15,600Raw materials Inventory…………………… P 6,000

Current Liability: Payables (“Payments on Account”)

Progress billings……………………………… P144,000Less: Construction In Progress……………. _137,280Gross amount due to customers………… P 6,720

Construction In Progress Progress Billings 20x3 CI 126,048 144,000 20x3 Pr 11,232 end of x3 137,280 144,000 end of x3 20x4 CI 238,032 240,000 20x4 Pr 11,232

end of x4 399,600 384,000 end of x4 20x5 CI 127,920 156,000 20x5 Pr 12,480

540,000 540,000 540,000 540,000

where: CI - cost incurred each year Pr - profit

b. Input Measure – Cost Recovery Method Current Asset:

20x3 20x4 20x5Accounts receivable………………………. P 24,000 P 36,000 P -Raw materials Inventory…………………… P 6,000

Current Liability: Payables (“Payments on Account”)

Progress billings……………………………… P 137,280 P384,000

Less: Construction In Progress……………. _144,000 _364,080Gross amount due to customers………… P 6,720 P 19,920

Construction In Progress Progress Billings 20x3 CI 126,048 144,000 20x3 Pr 0 end of x3 126,048 144,000 end of x3 20x4 CI 238,032 240,000 20x4 Pr 0

end of x4 364,080 384,000 end of x4 20x5 CI 127,920 156,000 20x5 Pr 48,000

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)20x3 20x4 20x5

Revenue……………………………………… P 137,280 P 262,320 P 140,400Less: Costs / Expenses……………………... _126,048 _238,032 _127,920Gross Profit……………………………………. P

11,232 P 24,288 P 12,480

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

20x3 20x4 20x5Revenue……………………………………… P 126,048 P 238,032 P 175,920Less: Costs / Expenses……………………... _126,048 _238,032 _127,920Gross Profit……………………………………. P 0 P 0 P 48,000

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

a. Input

Measure – Cost Recovery Method Loss in 20x4 P( 200,000) Loss in 20x5 P (100,000)

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

2008:Contract price P2,500,00

0Actual cost to date P1,500,00

0Estimated costs to complete 1,200,000Total estimated project costs 2,700,000Estimated loss, recognized in 2008 P

(200,000)

2009:Contract price P

2,500,000Costs incurred: In 2008 P1,500,00

0In 2008 1,300,000

Total cost 2,800,000Total loss P

(300,000)Recognized in 2008 (200,000)Recognized in 2009 P

(100,000)

2008:Construction in progress 1,500,000

Various credits 1,500,000

Accounts receivable 1,200,000 Billings on construction contract 1,200,000

Cash 1,000,000 Accounts receivable 1,000,000

Cost of construction 1,588,889 Construction in progress (loss) 200,000 Revenue from long-term contracts* 1,388,8892009:Construction in progress 1,300,000 Various credits 1,300,000

Accounts receivable 1,300,000 Billings on construction contract 1,300,000

Cash 1,500,000 Accounts receivable 1,500,000

Cost of construction 1,211,111 Construction in progress (loss) 100,000 Revenue from long-term contracts**

1,111,111

Billings on construction contract 2,500,000 Construction in progress 2,500,000

*P2,500,000 (P1,500,000/P2,700,000) ** P2,500,000 1,388,889

Problem VItem to compute AnswerTotal revenue recognized during 2009 (w): P50 millionCIP contains cost + gross profit = revenue, so w = P50 P 15

millionGross profit recognized during 2009 (x): P50 – P35 = P15Billings on construction (y) : P14 + P 46 = P60 P60million Net billings in excess of construction in progress (z): Billings of P60 – CIP of P50

P10 million

Calculate the percentage of PAC that was completed during 2009:50/150 = 33.33% 333.33%

Problem VIItem to compute AnswerCash collected by KP on Cincy One during 2009. (P75 billings – P10 A/R)

P65 million

Actual costs incurred by KP on Cincy One during 2009 (P66 CIP – P22 gross pofit)

P44 million

At 12/31/2009, the estimated remaining costs to complete Cincy One (44/{44 + x})(300 – {44 + x}) = 22; x = 156

P156 million

The percentage of Cincy One that wa completed during 2009 100 x (44/ {44 + 156})

22%

Problem VII1.

Progress billings on construction contract P562,000Less accounts receivable 150,500 Cash collected in 20x4 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 VIII1. Percentage of Completion Method (Cost-to-cost Approach)

20x4 20x5 20x6 Contract price ................... P250,000 P250,000 P250,000Current year costs ............... 110,000 120,000 15,000Costs to date .................... 110,000 230,000 245,000Estimated cost to complete ....... 100,000 20,000 0Estimated total cost ............. 210,000 245,000 240,000Estimated total gross profit ..... 40,000 5,000 5,000Percent complete ................. 52% 94% 100%Revenue to date .................. P130,000 P230,000 P250,000

To Date Previous Current at Dec. 31 Years Year

20x4: Revenue P130,000 P130,000 Costs (110/210 x 210) 110,000 110,000 Gross profit P 20,000 P 20,000

20x5: Revenue P235,000 P130,000 P105,000 Costs (230/245 x 245) 230,000 110,000 120,000 Gross profit (loss) P 5,000 P 20,000 P(15,000)

20x6: Revenue P250,000 P235,000 P 15,000 Costs 245,000 230,000 15,000 Gross profit P 5,000 P 5,000 P 0

20x4 20x5 20x6 1. Revenue recognized during

the year P130,000 P100,000 P15,0002. Gross profit recognized during

the year 20,000 (15,000) 03. Balance in the construction in

progress account at Dec. 31 . 130,000 235,000 04. Balance in the progress

billings account at Dec. 31 . 125,000 250,000 05. Net (3-4) or (4-3) – due from (due to) 5,000 (15,000) 0

2. Cost Recovery Method20x4 20x5 20x6

1. Revenue recognized during the year P110,000 P120,000 P20,000

2. Gross profit recognized during the year 0 0 5,000

3. Balance in the construction in progress account at Dec. 31 . 110,000 230,000 0

4. Balance in the progress billings account at Dec. 31 . 125,000 250,000 0

5. Net (3-4) or (4-3) – due from (due to) (15,000) (20,000) 0

Problem IX1. Percentage of Completion Method (Cost-to-cost Approach)

2005 2006 2007Contract price P250,000 P250,000 P250,000Current year costs 150,000 100,000 15,000Costs to date 150,000 250,000 265,000Estimated cost to complete 90,000 20,000 0Estimated total cost 240,000 270,000 265,000Estimated total gross profit 10,000 (20,000) (15,000)Percent complete 63% 93% 100%

Revenue to date P157,500 P232,500 P250,000

To Date Previous Current at Dec. 31 Years Year

2005: Revenue ............ P157,500 P157,500 Costs (150/240 x 240) 150,000 150,000 Gross profit ............ P 7,500 P 7,500

2006: Revenue ............ P232,500 P157,500 P 75,000 Costs ............ 252,500 150,000 102,500 Gross profit (loss) ............ P(20,000) P 7,500 P(27,500)

2007: Revenue ............ P250,000 P232,500 P 17,500 Costs ............ 265,000 252,500 12,500 Gross profit (loss) ............ P(15,000) $(20,000) P 5,000

20x4 20x5 20x61. Construction costs (expense) recognized during the year P150,000 P102,500 P12,500 2. Gross profit recognized during the year 7,500 (27,500) 5,000 3. Balance in the construction in progress account at Dec. 31 (after closing entries) 157,500 230,000* 0 4. Balance in the progress

billings account at Dec. 31 . 110,000

230,000

0

5. NNet (3-4) or (4-3) – due from (due to) 47,500

0 0

Balance in accounts receivable at Dec. 31 (after closing entries) 10,000 10,000 0

*P150,000 + 7,500 + 157,500 + 100,000 costs incurred during the year – 27,500 loss

2. Cost Recovery Method20x4 20x5 20x6

1. Construction costs (expense) recognized during the year P150,000 P 80,000* P20,000** 2. Gross profit recognized during the year 0 (20,000) 5,000 3. Balance in the construction in progress account at Dec. 31 (after closing entries) 150,000 ***230,000 0 4. Balance in the progress

billings account at Dec. 31 . 110,000

230,000

0

5. NNet (3-4) or (4-3) – due from (due to) 40,000

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 6 M Add: Cost incurred in prior years 0 Costs incurred to date P 6 MAdd: Estimated cost to completeTotal estimated costs P 18 MPercentage 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. cP1,170,000—————- x (P3,300,000 – P1,950,000) = P810,000P1,950,000

(P3,300,000 – P2,010,000) – P810,000 = P480,000.

4. b P1,200,000————— x (P7,200,000 – P4,800,000) = P600,000.P4,800,000

5. c P7,200,000 – P4,875,000 =P2,325,000.

6. a 20x4

Contract Price P4,800,000x: Percentage-of-completion _______75%Recognized Revenue to date P3,600,000Less: Costs incurred to date P3,400,000Gross Profit to date P 200,000Less: GP in prior year _______-0-Gross profit in current year P 200,000

7. a P3,600,000————— x (P8,400,000 – P6,000,000) = P1,440,000.P6,000,000

8. b P8,400,000 – P5,600,000 = P2,800,000.

9. 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.

10. c 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. aContract Price P6,000,000Less: Total Estimated Costs Costs Incurred-1/10/x4 to 12/31/x5 P3,600,000 Add: Estimated costs to complete 1,200,000 4,800,000Less: Costs incurred to date P1,200,000Multiplied by: % of completion ___3.6/4.8Gross Profit to date P 900,000Less: GP in prior year (given) ___600,000Gross profit in current year 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 P3,300,000

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.

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. b P240,000 – P100,000 = P140,000.

22. d P300,000 – P60,000 = P240,000

P240,000————————— x (P2,400,000 – Total estimated cost) = P60,000Total estimated cost

Total estimated cost = P1,920,000P2,400,000 – P1,920,000 =P480,000.

23. b (P25,000,000 × .60) – (P22,500,000 × .25) = P9,375,000.

24. b 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. c P3,200,000 – P2,150,000 = P1,050,000.

29. c 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 728,000

33. d P3,500,000 –P1,350,000 – P1,525,000 = P625,000.

34. cCosts of construction 1,200,000Construction in progress 800,000 Revenue for long-term contracts 2,000,000Percentage complete = P1,200,000 / (P1,200,000 +P600,000) = 2/3Revenue recognized = 2/3 P3,000,000 = P2,000,000Cost recognized = P1,200,000Gross profit recognized = P2,000,000 P1,200,000 = P800,000

35. aCosts of construction P1,200,000Profit 800,000Construction In Progress P2,000,000Less: Progress billings 1,500,000Excess (Due from customers) P 500,000

36. bCosts of construction 600,000Construction in progress 400,000 Revenue for long-term contracts 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. dCosts of construction 1,200,000

Revenue for long-term contracts1,2000,00

0 Under cost recovery method, revenue should be recognized up to the extent of costs

incurred.

38. bCosts of construction P1,200,000Profit 0Construction In Progress P1,200,000Less: Progress billings 1,500,000Excess (Due to customers) P( 300,000)

39. dCosts of construction 600,000Construction in progress 1,200,000 Revenue for long-term contracts 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. a20x4 20x5

Contract price P 9,600,000 P10,080,000

Costs incurred to date P 4,920,000 P 8,640,000

Add: Estimated cost to complete 4,920,000 2,160,000Total estimated costs P 9,840,000 P

10,800,000Estimated Gross Profit (loss) P(240,000

)P

(720,000)Multiply by: % of completion 100% 100%Recognized Gross Profit (Loss) to date P

(240,000)P

(720,000)Less: Gross Profit (Loss) in prior year _________ (240,000)Recognized Gross Profit (Loss) in current year P

(240,000) P

(480,000)

% of Completion / Cost Recovery Method: Construction in Progress Progress Billings

CI 4,920,000 240,000 loss 5,280,000

4,680,000 5,280,000CI 3,720,000 480,000 loss 3,420,000

7,920,000 8,700,000 due to customers

P780,000Note: 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 Year 3Timers laid Each Year 300 500Add: Timbers laid in Prior Years 150 450Timbers laid to date 450 950Add: Additional support timbers to be laid 520 -0-Total Estimated Timbers 970 950Percentage-of-Completion 45/97 100%x: CONTRACT PRICE P 800,000 P 800,000Recognized Revenue to Date P 371,134 P 800,000Recognized Revenue in Prior Years 371,134 Recognized Revenue in Current Yr. P

428,866

Output Measures – Number of trail feetYear 2 Year 3

Trail feet Each Year 7,500 8,000Add: Trail fees in Prior Years 3,000 10,500Trail feet to date 10,500 18,500Add: Additional trail feet to be constructed 8,200 ___-0-Total Estimated Trail feet 18,700 18,500Percentage-of-Completion 105/187 100%x: CONTRACT PRICE P 800,000 P 800,000Recognized Revenue to Date P 449,198 P 800,000Recognized Revenue in Prior Years 449,198Recognized Revenue in Current Yr. P

350,802

42. dPercentage of Completion: Project 6 Project 7 Project 8Contract price………………………….. P500,000 P700,000 P250,000Cost incurred each year………………. P375,000 P100,000 P100,000Add: Cost incurred in prior year……… _________ ________ ________Costs incurred to date………………… P375,000 P100,000 P100,000Add: Estimated costs to compute……. ________ 400,000 100,000Total estimated costs…………………. P375,000 P500,000 P200,000Estimated gross profit………………… P125,000 P200,000 P 50,000Multiply by: percentage of completion. 100

% 20

% 50%

Recognized gross profit to date……… P125,000 P 40,000 P 25,000Less: Recognized gross profit in prior

years_________ _________ _________

Recognized gross profit each year…. P125,000 P 40,000 P 25,000

Cost Recovery Method of Construction Accounting:Project 6 Project 7 Project 8

Recognized Revenue………..……….. P500,000*

P100,000 P100,000

Less: Costs of long-term construction contract……………………………..

375,000 100,000 100,000

Recognized gross profit each year…. P125,000 P 0 P 0 * Since the contract is completed then the full amount of P500,000 contract price should be

recognized as revenue.

Percentage of Completion Cost Recovery Method of Construction Construction in Progress Construction in Progress

Pr. 6 - Cl. 375,000 Pr.

125,000Pr. 7 – Cl. 100,000

Pr. 40,000Pr. 8. Cl 100,000

Pr. 100,000

500,000 Pr. 6 Pr. 6 - Cl. 375,000

Pr. 125,000 Pr. 7 – CI 100,000

Pr. 8 – CI 100,000700,000

12/31 200,000

500,000 Pr. 6

500,000(d)

765,000 500,00012/31 265,000

(d)

43. b2006 2007 2008

Contract price………………………….. P5,000,000

P5,000,000

P5,000,000

Cost incurred each year………………. P2,050,000

Add: Cost incurred in prior year……… 900,000 2,550,000

Costs incurred to date………………… P 900,000

P2,550,000

P4,600,000

Add: Estimated costs to complete 1,700,000

-0-

Total estimated costs…………………. P4,250,000

P4,600,000

Estimated gross profit………………… P 750,000

P 400,000

Multiply by: percentage of completion. 60 %

100 %

Recognized gross profit to date……… P 100,000

P 450,000

P 400,000

Less: Recognized gross profit in prior years

-0- 100,000 450,000

Recognized gross profit each year…. P 100,000

P 350,000

P( 50,000)

44. d – refer to No. 4345. c – refer to No. 1846. d – refer to No. 1947. c

Prior year Current yearContract price………………………………………. P7,000,00

0P7,000,000

Cost incurred each year…………………………..Add: Cost incurred in prior year………………….Costs incurred to date…………………………….. P5,000,000Add: Estimated costs to complete……………… 2,800,000Total estimated costs………………………………. P7,800,000Estimated gross profit (loss)………….…………….

(P 800,000)

Multiply by: percentage of completion……….. _____100%Recognized gross profit (loss) to date………….. P600,000 (P 800,000)Less: Recognized gross profit in prior

years…….___600,000

Recognized gross profit each year…………….. (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………………………………….. P 26,000,000 GP in the current year…………………………………… 2,700,000 P 28,700,000 Less: Progress billings…………………………………….. 5,000,000 Due from customer (net)………………………………. P 23,700,000

49. cContract Price P100,000,000Multiplied by: Gross Profit Rate _________25%Estimated Gross Profit of the entire contract P 25,000,000Multiplied by: Percentage of Completion for first year _________50%Gross Profit realized for current year P 12,500,000

50. c Contract Price P120,000,000

x: Mobilization Fee 10%

Collection in 20x4 P 12,000,000Note: Billings for 20x4 will be collected in January 20x5.

51. aMobilization Fee: 5% x P10M P 5.0 MCollection on Billings:

Contract price P 100 Mx: Progress billings, net of 10% and 8% (50% - 10% - 8%) 32%Progress billings P 32 Mx: Collections net of contract retention of 10% 90% 28.8

MCollections 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).

Theories1.

False 6. False 11. False 16. True 21.

True 26. c 31.

d

2.

True 7. False 12.

True 17.

False

22.

False

27.

b 32.

c

3.

True 8. False 13.

False 18.

True 23.

False

28.

c 33.

b

4.

False 9. True 14.

True 19.

False

24.

False

29.

b 34.

d

5.

False 10,

False 15,

False 20.

True 25.

b 30.

a 35.

c

36. d 41. c37

.b 42

.b

38.

a 43.

a

39.

c 44.

d

40.

d 45.

c

solution chapter 8

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