Chapter 8

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

2008:
  Contract price P2,500,000
Actual cost to date P1,500,000
a. Estimated costs to complete 1,200,000 Input
Total estimated project costs 2,700,000
Estimated loss, recognized in 2008 P (200,000)

2009:
Contract price P 2,500,000
Costs incurred: In 2008 P1,500,000
In 2008 1,300,000
Total cost 2,800,000
Total loss P (300,000)
Recognized in 2008 (200,000)
Recognized in 2009 P (100,000)
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:
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* 1,388,889
2009:
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