1. The following data pertains to Bell Co’s construction jobs, which commenced during 2016.

Project 1 Project 2

Contract Price P420,000 P300,000

Costs incurred during 2016 240,000 280,000
Estimated costs to complete 120,000 40,000
Billed to customers during 2016 150,000 270,000
Received from customers during 2016 90,000 250,000

What amount of gross profit (loss) would Bell report in 2016 under the zero profit method and the percentage-of-
completion method?

a. P(20,000) and P20,000

b. P20,000 and P(20,000)
c. P20,000 and P340,000
d. P40,000 and P420,000

Solution 1 Answer A
Under the zero profit method. The expected income on project 1 [P420,000 – (P240,000 + P120,000) = P60,000] is
not recognized until the project is completed. However, under this method, an expected loss on a contract must be
recognized in full in the period in which it is discovered. Project 2 has an expected loss of (P20,000) [P800,000 –
(P280,000 + P40,000)] which must be recognized immediately in 2016.

Under the percentage-of-completion method gross profit is recognize using the following formula:
Cost to date
X Estimated profit = Gross profit to date
Total estimated costs
Bell would recognize gross profit of P40,000 on project 1:
P240,000
X [P420,000 – (P240,000 + P120,000)] = P40,000
P240,000 + P120,000
Note that prior years’ gross profit need not be subtracted from P40,000 because the project commenced during 2016.
Under both the percentage-of-completion method and the zero profit method an expected loss must be recognized in
full in the period in which the expected loss is discovered. Project 2 has an expected loss of (P20,000) [P300,000 –
(P280,000 + P40,000)] which must be recognized in full in 2016. The net gross profit recognized on the two projects
is P20,000 (P40,000 profit less (P20,000) loss.

2. Cord Builders, Inc. has consistently used the percentage-of-completion method of accounting for construction-
type contracts. During 2014 Cord started work on a P9,000,000 fixed-price construction contract that was completed
in 2016. Cord’s accounting records disclosed the following:

December 31
2014 2015

Cumulative contract costs incurred P3,900,000 P6,300,000

Estimated total cost at completion 7,800,000 8,100,000
How much income would Cord have recognized on this contract for the year ended December 31, 2015?
a. P100,000
b. P300,000
c. P600,000
d. P700,000

Solution 2 Answer A
The total expected income on the contract at 12/31/2015 is P900,000 (P9,000,000 – P8,100,000). The formula for
recognizing profit under the percentage-of-completion method is:
Costs to date
X Expected profit = Profit recognized to date
Total expected costs
P6,300,000
X P900,000 = P700,000
P8,100,000
This result is the total profit on the contract in 2012 and 2013. The 2012 profit recognized must be subtracted from
P700,000 to determine the 2010 profit. At 12/31/2013, the total expected income on the contract was P1,200,000
(P9,000,000 – P7,800,000). The income recognized in 2014 was P600,000, as computed below:
P3,900,000
X P1,200,000 = P600,000
P7,800,000
Therefore, 2015 income id P700,000 less P600,000, or P100,000.

3. State Co. recognizes construction revenue and expenses using the percentage-of-completion method. During
2015 a single long-term project was begun, which continued through 2016. Information on the project follows:

2015 2016
Accounts receivable from construction contract P100,000 P300,000
Construction expenses 105,000 192,000
Construction in progress 122,000 364,000
Partial billings on contract 100,000 420,000

Profit recognized from the log-term construction contract in 2015 should be

a. P50,000
b. P108,000
c. P128,000
d. P228,000

Solution 3 Answer A
Profit to be recognized using the percentage-of-completion method is generally computed as follows:
Costs to date
X Expected profit = Profit recognized in previous periods
Total expected costs
Not enough information is given in this problem to perform this computation, so 2016 profit must be computed
indirectly. Since only construction expenses and profit are debited to the construction-in-progress (CIP account),
2015 profit must have been P17,000 (P122,000 CIP less P105,000 cons. exp.) Cumulative profit recognized by the
end of 2014 must be P67,000 [P364,000 CIP less P297,000 cumulative cons. exp. (P105,000 + P192,000)].
Therefore, 2016 profit was P50,000 (P67,000 – P17,000).
 CIP

2015 Exp. 10,000

2015 profit ? 2015 Profit = P17,000
2015 End. Bal 122,000
2016 Exp. 192,000
2016 profit ? 2016 Profit = P50,000
2016 . Bal 364,000

4. Lake Construction Company has consistently used the percentage-of-completion method of recognizing income.
During 2015 Lake entered into a fixed-price contract to construct an office building for P10,000,000. Information
relating to the contract is as follows:
At December 31
2015 2016
Percentage of completion 20% 60%
Estimated total cost at completion P7,500,000 P8,000,000
Income recognized (cumulative) 500,000 1,200,000

Contract costs incurred during 2016 were

a. P3,200,000
b. P3,300,000
c. P3,500,000
d. P4,800,000

Solution 4 Answer B
Based on the information given it must be assumed that costs incurred are used to measure the extent of progress
toward project completion. At 12/31/2015, the project was 20% complete and total estimated costs were
P7,500,000. Therefore, costs incurred as of 12/31/2015 were 20% of P7,500,000, or P1,500,000. At 12/31/2015, the
project was 60% complete and total estimated costs were P8,000,000, or P4,800,000. The costs incurred during
2016 were P4,800,000 less P1,500,000, or P3,300,000.

5. Hansen Construction, Inc. has consistently used the percentage-of-completion method of recognizing income.
During 2016 Hansen started work on a P3,000,000 fixed-price construction contract, The accounting records
disclosed the following data for the year ended December, 31, 2016:

Costs incurred P 930,000

Estimated cost to complete 2,170,000
Progress billings 1,100,000
Collections 700,000

How much loss should Hansen have recognized in 2013?

a. P230,000
b. P100,000
c. P30,000
d. P0
Solution 5 Answer B
The requirement is to determine the amount of loss to be recognized in 2016 on a long-term, fixed-price construction
contract. Under both the percentage-of-completion method and the zero profit method, an expected loss on a
contract must be recognized in full in the period in which the expected loss is discovered. Therefore, Hansen must
recognize a loss of P100,000 in 2016.
Expected contract revenue P3,000,000
Expected contract costs (P930,000 + P2,170,000) 3,100,000
Expected loss P(100,000)

6. Marr Construction Company has consistently used the percentage-of-completion method. On January 10, 2015,
Marr began work on a P6,000,000 construction contract. At the inception date, the estimated cost of construction
was P4,500,000. The following data relate to the progress of the contract:

Income recognized at 12/31/2015 P 600,000

Cost incurred 1/10/2013 through 12/31/2016 3,600,000
Estimated cost to complete at 12/31/2016 1,200,000

How much income should Marr recognize for the year ended December 31, 2016?
a. P300,000
b. P525,000
c. P600,000
d. P900,000

Solution 6 Answer A
Contract Price P6,000,000
Less total estimated costs:
Cost to date P3,600,000
Cost to complete 1,200,000 4,800,000
Estimated gross profit 1,200,000
% of completion (P3,600,000 ÷ P4,800,000) 75%
Income recognized to date 900,000
Income recognized at 2015 600,000
Income recognized in 12/31/2016 P300,000

7. The following data relating to a construction job started by SS Co. during 2016:

Total contract price P100,000

Actual costs during 2016 20,000
Estimated remaining costs 40,000
Billed to customer during 2016 30,000
Received from customer during 2016 10,000
How much gross profit would SS Co. recognized for 2016 under the zero profit method and the percentage-of-
completion method?
a. P0 and P13,333, respectively
b. P0 and P26,667 respectively
c. P4,000 and P13,333, respectively
d. P12,000 and P33,333, respectively
Solution 7 Answer A
Under the zero profit method no gross profit is to be recognized since the project is not yet completed, under the
percentage-of-completion method the gross profit to be recognized in 2013 is computed below:
Contract price P100,000
Estimated cost:
Cost to date P20,000
Cost to complete 40,000 60,000
Estimated gross profit 40,000
% of completion (P20,000 ÷ P60,000) 33 – 1/3%
Gross profit recognized P13,333

8. On April 1, 2016, BB Inc. entered into a cost-plus-fee contract to construct an electric generator for Dalton
Corporation. At the contract date, BB estimated that it would take two years to complete the project at a cost
P2,000,000. The fixed fee stipulated in the contract is P300,000. BB appropriately accounts for this contract under
the percentage-of-completion method. During 2016, BB incurred costs of P700,000 related to the project, and the
estimated cost of December 31, 2016 to complete the contract is P1,400,000. Dalton was billed P500,000 under the
contract.

The gross profit to be recognized by BB Inc. under the contract on December 31, 2016 is.
a. P300,000
b. P100,000
c. P200,000
d. P0

Solution 8 Answer B
BB Inc. will earn P300,000 in total income from this project, regardless of the actual costs incurred, since it is a
cost-plus-fixed-fee contract. The amount to be recognized in 2016 is computed as follows:
Cost incurred to date
X Fixed Fee = Income recognized for 2008
*Total estimated costs
P700,000
X P300,000 = P100,000
*P700,000 + P1,400,000

9. The Robert Construction Corporation uses the percentage-of-completion method of accounting. In 2016, Robert
began work on a contract it had received which provided for a contract price of P8,000,000. Other details follow:

Costs incurred during the year P1,200,000

Estimated costs to complete as of December 31 4,800,000
Billing during the year 1,440,000
Collections during the year 1,000,000
What should be the gross profit recognized in 2016?
a. P160,000
b. P240,000
c. P400,000
d. P1,600,000
 Solution 9 Answer C
Contract price P8,000,000
Estimated cost:
Cost incurred during the year P1,200,000
Cost to complete 4,800,000
Estimated gross profit 2,000,000
% of completion (P1,200,000 ÷ P6,000,000) 20%
Gross profit earned to profit P400,000

10.In 2016, Long Corporation began construction work under a three-year contract. The contract price is P800,000.
Long uses the percentage-of-completion method for financial- accounting purposes. The income to be
recognized each year is based on the proportion of cost incurred to total estimated costs for completing the
contract. The financial-statement presentations relating to this contract at December 31, 2016 follows:

Statement of Financial Position

Accounts receivable-construction contract billings P15,000
Construction in progress P50,000
Less contract billings 47,000
Cost-of-uncompleted contract in excess of billings 3,000

Statement of Comprehensive Income

Income (before tax) on the contract recognized in 2016. P10,000
The cash collected in 2016 and the initial estimated gross profit on this contract are:
a. P32,000 and P10,000, respectively
b. P32,000 and P160,000, respectively
c. P15,000 and P160,000, respectively
d. P15,000 and 30,0000, respectively

Solution 10 Answer B
The cash collection in 2016 is computed below:
Contract billings P47,000
Less Accounts Receivable 15,000
Cash collected in 2016 P32,000

The initial gross profit on the contract is computed as follows:

Contract Price P800,000
Gross profit rate:
Income recognized P10,000
- = 20%
Const. in progress P50,000
Initial gross profit P160,000
Alternative Computation:
GP Recognized P10,000
Divided by percentage of completion:
CIP P50,000
= = ÷ .0625
CP P80,000 P160,000
 11.Cortez Construction Company, Inc. entered into a firm fixed-price contract with Rod Association on July 1,
2014 to construct a four-story office building. At that time, Cortez estimated that it would take between two
and three years to complete the project. The total contract price for construction of the building is P4,000,000.
Cortez appropriately accounts for this contract under the zero profit method in its financial statements and for
income tax reporting. The building was deemed substantially completed on December 31. 2016. Estimated
percentage of completion, accumulated contract costs incurred, estimated costs to complete the contract and
accumulated billings to Rod under the contract were as follows:

At December At December At December

31, 2014 31, 2015 31, 2016
Percentage of completion 10% 60% 100%
Contract costs incurred P350,000 P2,500,000 P4,250,000
Estimated costs to complete the contract P3,150,000 P1,700,000 -
Billings to Rod 720,000 2,160,000 3,600,000

The amount to be shown as excess of cost over billings or (billings in excess of cost) in December 31, 2016?
a. (P400,000)
b. P260,000
c. P400,000
d. (P260,000)
Solution 11 Answer C
Constract Costs incurred to date, 2016 P4,250,000
Less: Loss on contract to date:
Contract Price P4,000,000
Total estimated Cost 4,250,000 (250,000)
Net 4,000,000
Billings to date 3,600,000
Costs in excess of billings P400,000

12. X Company uses the percentage-of-completion method of recognizing income. In 2015, work was started on a
P18,000,000 job completed in 2015. Records in 2016 show the following:

Progress billing P6,600,000

Costs incurred 4,500,000
Collections 4,200,000
Cost to complete 10,600,000
Gross profit recognized in 2016 was:
a. P1,400,000
b. P1,200,000
c. P 900,000
d. P 600,000

Solution 12 Answer D
Contract Price P18,000,000
Estimated cost:
Cost incurred P5,400,000
Cost to complete 10,800,000 16,200,000
Estimated gross profit 1,800,000
% of completion (P5,400,000 ÷ P16,200,000) 33.1/3%
Gross profit recognized in 2016 P600,000

13. In 2016 North Construction Co. was constructed to do the private road network of Subdivision Corp. for P100
million. The project was estimated to be completed in two years.
The construction contract provided among other things the following:
a. Five percent mobilization fee (to be deducted from the last billing) payable within fifteen days after the
signing of the contract;
b. Retention provision of 10% on all billings, payable with the final bill after the acceptance of the completed
project; and
c. Progress billings on construction are payable within seven days from acceptance.

North estimated its gross margin on the project at 25%.It used the percentage of completion method of accounting.
By the end of the year, North presented progress billings corresponding to 50% completion. Subdivision Corp.
accepted all the bills presented except the last one for 10% which was accepted on 10 January. With the exception of
the second to the last billing of 8% accepted in 2016 which was due on 3 January 2017, all accepted billings were
settled.

In 2016 North realized gross profit from the Subdivision project the sum of
a. P10,000,000
b. P12,500,000
c. P25,000,000
d. P 7,500,000
Solution 13 Answer B
Contract Price P100,000,000
Gross profit rate 25%
Estimated gross profit 25,000,000
% of completion 50%
Gross profit realized in 2016 P12,500,000

14. On September 14, 2016, Contractors Inc. won the bid for the construction of a 1,000 room hotel for Victoria,
Inc. on the reclamation are for P1.2 billion. On the terms of payment, parties agreed to the following:
a. One percent mobilization fee (deduction from the final bill) payable within fifteen days after the signing
of the contract;
b. Retention of 10% on all billings, payable with the final bill after the acceptance of entire completed
project; and
c. Progress billings on construction within seven days from date of acceptance.

By the end of 2016, the company had presented only one progress billings for 10% completion which Victoria,
Inc. evaluated and accepted on 28 December for payment in January. The company used the percentage of
completion method of accounting.

Contractor’s, Inc. received a fee of:

a. P 9,800,000
b. P10,800,000
c. P12,000,000
d. P 1,200,000

Solution 14 Answer C
The fee received by contactor’s fee is P12,000,000 (1% of the bid price of P1.2 Billion).
 15. Bona Constructors, Inc. has the following data for a large jobs in its Jobs in Progress account (000’s omitted):

Project no. Actual Cost Estimated Total Cost Contract Price Percent Complete
101 P8,756 P172,800 P192,000 5
102 11,457 14,875 17,500 75
103 53,865 61,250 87,500 80
104 22,800 39,760 49,700 55
105 44,500 122,310 151,000 35
P141,378 P410,995 P497700

The company accounts for its large jobs under the percentage of completion method. Billings are done as follows:
a. 20% down payment upon contract signing.
b. Balance is billed according to percentage of completion less an application of the down payment which is
also according to percentage of completion.
The total billings made for the large job is:
a. P203,286
b. P99,540
c. P104,246
d. P193,786

Solution 15 Answer A
20 % Down payment on contract price:
P192,000 x .20 P38,400
17,500 x .20 3,500
87,500 x .20 17,500
49,700 x .20 9,940
151,000 x .20 30,200
Total P99,540

Billing on balance, less applied down payment:

(P192,000 x .80 x .05) – (P38,400 x .05) P 5,760
(17,500 x .80 x.75) – ( 3,500 x .75) 7,875
(87,500 x .80 x .80) – (17,500 x .80) 42,000
(49,500 x .80 x .55) – ( 9,940 x .55) 16,401
(151,000 x .80 x .35) – (30,200 x. 35) 31,710
Total 103,746
Total billing made for large jobs P203,286