1.!

frrll l Co11 stn, ctin c

l, 011· 11
- - - - - - - - - - - o11crac1,, · · (/1
_·AS II )

ldiUiiiH ~ ; :- - - - --- - - - 43
- .
1. In acc oun ting for a
Dumr#tihih\161[Il~l ~1-

· 1 -
cmn pletton n1cthod thong kn '
n ,
' .e pro gresscon structio
biHin '. -n. con.trac
. . . ,. _
t us111g the pcrc ent aic of
.gs on contrac t account is a:
a. Contra current asset ,...,.
c a~count
b. ontra non cun ent ass eta cc. .
c. Noncurrent r b'l•
ia 1 1ty account.ount.
d. Revenue account.

2. The computation of the •

constructipn contract wh·•.nhc?n1e recogni zed in the
second year of a four-year
method is based on the: tc 1s· accou nted £or US mg
·
the percentage of completion

a. Cumulative actual costs incurred only.

b. Increment~! cost for the second year only.
c. Latest available estimated costs.
d. Estimated costs at the inception of the contract.

3. In accounting for a long-term construction con

tract for which there is a projected
profit, the balance in the appropriate asset accoun
ts at the end of the first year of
work using the hybrid contract method would be:

a. Zero.
b. The same as the percentage of completion method
.
c. Higher than the percentage of completion method
.
d. Lower than the percentage of completion method.

4. When should an indicated loss on a long term

contract be recognized under the
hybrid contract method and the percentage of com
pletion method, respectively?

Zer o Pro fit Percentage of Completion

a. Immediately 1.mmediately
b. Immediately Over the life of the project
c~ Completion of contract Over the life of the project
d. Completion of contract Immediately
 Chapter JO
438
5. A comp11nyuses thepcroentage ofcompletion method
wru- constn1ction contra.:\. Which of the following would betoused
ac~ount for a fo~r-
m the calculation
"of the incotnc rec.ognized in the
first year?
Collections on progress billings
Progtess Billing
n. No No
b. No Yes
c. Yes No
d. Yes Yes
6. In computing the percenmge of completion ratio, under
the cost to cost method,
act\lal costs incurred should exclude:
a. Costs of1naterials used in construction.
b. Costs ofhiring equiptnent.
c. Costs of design and technical assistance.
d. Costs ofn1aterials purchased in advance.
7• The excess of the Construction in Progress account ove
r the Con trac t Billings is
treated as:
a. Current liability
b. Current asset
c.. Other asset
d. Non current liability

8. The exce
treated as:ss of Contract Billings ove r the Con stru ctio n in Pro gress account 1s
.

a. Current liability
b. Current asset
c. Other asset
d. Non current liability

9. Bef o~ the year of completion under the

year enJ balance of the Con s~c ti . ppercentage of com
pletion method, the
on in rogress account equ al to:
a. Cos t incurred to date
b. Cost incurred this year
c.
d Cos
G t incurred to d ate p1us gross profit earned to dat
· · ross profit earned to date e.
 r , , tnJ/ r; r 1)nfr u 1 I, f?A .r; JI;
I l;f ,'I I l ' ff(I
---~---1.
1
/- 1 ,_
f1 / 1

_· _ . --·- - -- - --
. - - -- - - - -
439
~ - - - -- - -

1o. fJdlfre the 'lear ,,f '/ ~rrrpkti,Jn1 under the zero profit method,
the year end balance
, 1t thf; 0m~,truct,,,n m Progress account is equa
l to:
a, f ;,<,t m(.,ur red t<J date
h, rncu rred thi-, year
( Af,t
<;, <Jr.,t incurred to date plus gross profit earn
ed to date
(l r ,rrJ~h profit earned to date

J J• A corn.,tru(,t ion <;i)mpan y is in the middle of a two-year construct

ion contract when
it rece ,ve~a l<-:-tcr from the customer extending the cont
ract by a year and requiring
the con~~tructton company to increase its output in proportion
of the number of
ycan. " f the new contract to the previous contract period.

'll1is iff al lowed in recogniz ing additional revenue if:

a. Negotiation s have reached an advanced stage and it is

probable that the
cw1tomer wi 11 aCC{,1)t the claim.
h, The contract is sufficiently advanced and it is probable
that the specified
performance standard s will be exceeded or met.
c. It is probable that the customer will approve the variation and
the amount of
revenue arising from the variati0n, and the amount of revenue can
be reliably
m~dSUrcd.
d. Jt js probable that the customer will approve the variation and
the amount of
revenue arising from the variation, whether the amount of reve
nue can be
reliably measured or not.

·12. A constniction company signed a contract to build a theater

over a period of two
years; and with this contract also sign~d a maintenance contract fo~ five
years.
Both the contracts are negotiated as a single package and are close
ly mterrelated
to each other.

Tiie two contracts should be:

Co1nbined and treated as a single contract.
~ Segmented and considered two separate contra:-
. - .zed under the completed contract meth
~ --
1
~ : ~ differently-the bui l:g 00
maintenance contract under e pe
:::;~ c!;i::=ntract, .·
. . . .

·:):; .
 Owp it ·r I()
440

,
Mu l..TI PLE. CH~-ICES - .~ OMP
.
UTAl"IONAL
..
. . ' . . '

. · b started by Esther Inc. :

I 0-1: The following data relates to a construcuo n JO

Total contract price . Pl ,000 ,000

Actual cost incurred m 2013 200,0 00
Estimated remaining costs 400.0 00
Billings to customers in 20 I~ 300,0 00
Collections from customers m 2013 l 00,00 0

How much gross profit is to be recognized by Esther, Inc.?

Percentage of Completion
Method Zero Prof it Meth od
a. P133,333 -O-
b. P266,667 P200 ,000
c. P333,333 PJ00 ,000
d. PJ33,333 P200 ,000

t 0-2: Tower Builders, Inc. has consistently used the percentage-of-comp]e

rion method
of accounting for construction-type contracts. In 2012 , Towe r Builders starte
d
work on a P9,000,000 fixed price coqstruction contract that was comp leted
in
2013. The company's accounting records disclosed the following:
·

Dece mber 31
2012 2013
Cumulative contract costs incurred
P3,900,000 . P6,300,000
Estimated total costs at completion
7,800 ,000 8,100,000
How much income would Tower have recognized on this contract for the
ended December 31, 2013? year

a. Pl00 ,000
b. P300,000
c. P600,000
d. P700,000

10-3: F.F. Cfll:2 Construction Com pany has consi stent ly used the perce
ntage -of-
. complet1~n method. On Jan ~ 10,_ 2012, FF Cruz began work on a P6,00
0,000
constructJon contract. At the mcepnon date, the estimated costs ofconstructio
was P4,500,000. n
 441

S o !0-! : Contin ued

The follow ing data relate to the progress of the contract:

Incom e recog nized at Decem ber 31 , 2012 P600 ,000
Cost incurred Jan. 10, 2012 thru Dec. 31 , 2013 3,600 ,000
Esti mated cost to comp lete at Dec. 31, 2013 1,200 ,000
How much incom e should FF Cruz recognize for the year ended Dece
20 13? mber 31,
·

a. ,P300,000
b. P525,000 •
C. P600,000
d. P900,000

104: D. Diaz Cons oucti on Inc. bas consistently used the perce ntage -of-co
mplet ion
meth od of recognizing incom e. In 2013 , Diaz starte d work on a P3,00 0,000
fixed-price construction contr act The accounting records disclosed the following
data for the year ended Dece mber 31, 2013: •

Costs incur red P 930,0 00

Estimated cost to comp lete 2,170 ,000
Progress billings 1,100 ,000
Collections 700,0 00
How much loss should D.D. Diaz have recognized in 2013?

a. P230,000
h. PJ00,000
c. P 30,000
d. p 0
I 0-5: On April 1.2012, GC Constru~on Company entered into a fix~-price
contract
to constru~t an apartment building for P6,00 0,000 . GC appropnately accou
nts
this contr act under the percentage-of-completion method. Information relati
ng
to the contract is as fallows:

2012 2013
Percentage ofCompletion . 20% 60%
Estimated costs at completi~n P4,50 0,000 P4,800,000
Incom e recognized (cumulative) 300,0 00 720,000
 Chapter 10
442

No. /0-5 : Continued

What is the amount of contract costs incurred during the year ended December
31,2013?

a. Pl,200,000
b. Pl,980,000
c. Pl,920,000
d. Pl,880,000

10-6: GG Construction Company began a construction project on a building for

P3,000,000. The project was completed during 2013. The accounting records
disclosed the following:

2012 2013
Progress billings during the year Pl,100,000 Pl,900,000
Cost incurred during the year 900,000 1,800,000
Collections 011 billings during the year 700,000 2,300,000
Estimated cost to complete 1,800,000

What is the balance of construction in progress account at the end of the 2012.

Percentage of
Completio11 Method Zero Profit Method
a. 1,000,000 900,000
b. 900,000 900,000
c. 1,000,000 1,000,000·
d. 2,700,000 1,800,000

10-7: The M & M Constructi~n.company began work on a contract in 2012 and

complet~d the cont~act 1n 2013: The total contract price was P4,200,000.
Information concerning the contract for 2012 an92013 is as follows:

2012 2013
Costs incurred during year
P600,000 P3,150,000
E~ti~ated costs to complete at end of year
2,400,000
B1llmgs during year -0-
720,000 3,280,000
Collections during year
400,000 3,000,000
l\.111.i:: krm Cunsrruct,vn Co11tracrs (PAS II) 443

Xo. 10- 7: Conrinued

Under the percentage -of-completi ons method, what amount of the P4,200,OOO
cont:f3ct price is to be recognized as income in 2012 and 2013?

2012 2013
a. P240,000 P210,000
b. P240,000 PSJ0,000
c. P360,000 P90,000
d. P360,000 P690,000

10-8: The W.W. Constructi on Corporation began constructio n work under a three-
year contract. The contract price was P800,000. WW uses the percentag e-of-
completio n method for financial accounting purposes. The income to be
recognized each year is based on the proportion of cost incurred to to~J estimated
costs for con1pleting the contract. The financial statement presentations relating
to this contract at December 31 , 2013 is presented below:

Statement of Financia l Position

Accounts receiva bl e-constructi on billings Pl5,0vO
Constructio n in progress PS0,000
Less: contract billings 47,000
Cost of uncomplete d contract in excess of b illings 3,000

Stateme nt of Compre hensive Income

Income ( before tax) on the contract
recognized in 2013 PI0,000

The amount of cash collected in 201 3 and the initial gross profit on this contract
are:

Caslr Initial
Collected Gross Profit
a.. P32,000 PB00,000
b. P32,000 PJ60,000
C. P60,000 P 750,000
d. P30,000 P 790,000
444

10-9 through 10-12 are based on the following data:

Sin Construction Co. has used the cost-to-cost percentage -of-complet ion metho
d
of recognizing revenue, Marc Sin assum ed the presidency of the company after
the death ofhis father, Vincent. In reviewing the records, Marc finds the fo llowi.n
g
information regarding a recently completed building project for which the total
contract was P2,000,000.

20 11 201 2 2() / 3
Gross profit (loss) P40,000 P140,0 00 P(20,000)
Cost incurr ed each year 360,000 ? 820,000

Marc wants to know how effectively the company operated during the three
(3)
years on this project and, since the infonnation is not complete, has asked
for
answers to the following questions:

10-9: How much cost was incurred in 2012?

a. P660 ,000
b. P600 ,000
c. P560 ,000
d. PS00 ,000

10-10: What percentage of the .project was completed by the end of20
12?
a. 65%
b. 60%
c. 55%
d. 79%

10-11: What was the total estimated gross profit on the project by the
end of201 2?
a. P300 ,000
b. Pl80 ,000
. c. P250 ,000
d. P350 ,000

10-12: What was the estimated cost of complete tl ·

. lepro Jecta tthee ndof 2012 ?
a. P660 ,000
b. .PS00,000
c. P650 ,000
d. P680 ,000
~~·~ Ter//1 ( '0 11 s11 ·11 c t io 11 ( ·0 11t m c ts (/ ~S I I )
445
10 .. 13: Dwayne Campa . .
· 11Y reco gni .
zes con stru ct1011 rev enue and costs usin .
percentage of con1 I , .· . g the
. P et1on met hod . Dun ng 201 2, a sin .
gle long-tenn proJ.ect
begun whi ch cont' ed .
· mu t11rou gh 2013 . Info rmation . on the
proJ.ect fo llow s:

2012 2013
Acc ounts receivable
P200,000 P600,000
ConstrJ ction costs
210,000 384 ,~0 0
Constru ction in progress
244 ,000 728 ,000
Partial billings on contract
200,000 840,000
What is the gross profit recognized from this long-ter
m construction contract?
2012 2013
a. P44 ,00 0 P45 6,0 00
b. P44 ,00 0 P200,000
c. P34 ,00 0 P25 6,0 00
d. P34 ,00 0 Pl0 0,0 00

10-14: On January 2, 2013, Angel Construction Com

pany entered into a contract to
construct two projects. The following data relates to
the construction period:

Project I Project 2
Contract price P420,000 P300 ,000
Costs incurred during 2013 240,000 280,000
Estimated cost to complete 120,000 70,000
Billings to customers 150,000 270,000

What amount of gross profit should Angel Constructio

n Company report in his
2013 statement of comprehensive income under the
following methods?

Percentage of
Completion Me tho d Zero Profit Method
a. p 0 P(40,000)
b. P(S0,000) P(J0,000)
c. P(l0,000) p 0
d. P(l0,000) P(S0,000)
446 c li ,,p tcr if.J

10-15: On April 1) 201 l , Chacha Construction Company, enters into a contract for
the construction of a building which is estimated to cost C hacha P3 , I 20,000.
Chacha is billing its client at cost plus 20 percent and uses the perce~tage of
completion method of accounting for construction contracts. The followmg data
are obtained on the project:

Cost In curred Estimated Costs

Each Year to Complete
2011 P 546 ,000 P2 ,054.000
2012 998 ,400 1.315 ,600
2013 1,57 5,600

What is the gross profit ofChacha for 2013?

a. PJ46,640
b. P477,360
c. P237,160
d. P624,000

10-16: Pim1a Company, is a contractor for the construction oflargc office buildings. At
the beginning of2013 , one building is in progress. TI1e following data described
the status of the building at the bcgirming of the year.

Contract price
P6,300,000
Costs incurred to January I, 2013 (including P50.000
worth of material s stored at the s ite to he used
in 2014 to complete the project)
Estimated costs to complete, January I, 2013 1,425,000
4,075,000

During 2013, the following data were obtained with respect to the same building:
Cost incurred to date
Cost to complete, December 3 I, 2013 PJ,040,000
1,960,000

What is the realized gr?ss profit (loss) to be reported for the ear 2013 usin the
percentage of complet10n? y g
a. P(300,000)
b. P(500,000J
c. p 580,000
d. p 577,400
J.,J1,g 1,,r,11 Conslr11ction Co11/rCJu, (PAS II)
447

I0-l 7: Jasn1 in Co~oration began construction work in 2013 for a project with a
contractpnce of P8 ,000,000. Jasmin Corporation uses the percentage-of-
con1plet1on method. The financial state,nents for 2013 relating to the contract
shows the following:

Accounts receivable PS00,000

Constru ction in progress 1,600,000
Pru 6 rcss billings to date 1,500,000
Gross profit earned in 2013 200,000

Compute the folJowing for the year 2013:

Cash Cost Incurred
Collections to date
a. P 1,000, 000· Pl,400,000
b. P7,500,000 Pl,400,000
c. Pl,000,000 Pl,600,000
d. Pl,400,000 Pl,600,000

I0-18: Villa Builders is in the business ofconstn1cting apartment buildings. Two buildings
were in progress at the beginning of2013. The status of these buildings at the
beginning of the year were as follows:

Apartment A Apartment B
Contract price Pl ,620,000 P2,520,000
Cost incurred to I/ 11013 600,000 1,560,000
Estimated costs to complete 840,000 690,000

During 2013 , the following costs were incurred:

Apartment A ( estimated costs to complete

as of I 2/3 I /0 I 3, P240,000) P600,000
Apartment B (Job completed) 750,000

How much is the realized gross profit in 2013, ifVil1a uses the:

Percentage of
Co111pletio11 Method Zero Profit Method
p 97,800 P187,200
a.
h. p 97,800 0
P210,000 P210,000
c.
p 97,800 P210,000
d.
 ( l11.Jfil<:r /{j

448 - - - -- - - - - - -- -- - - - - -- - - -
1-0-19: On May I, 20 11 , Nueva Builders Company obtai ned a contract ~o build _a
coliseum . The coliseum was to bu ilt at a total costs of P5/)(J~JJJ JO and 1s
scheduled for completion by May l, 2013. The contract contain s a penalty
clause to the effect that the other party was to deduct P 10,000 from the
P6,000,000 contract price for each week of delay. C~mplet! on was delayed
five weeks. Below are data pertaining to the construction penod:

201/ 2012 2013

Costs incurred to date P500,000 P2,340/JOO P2,650,0CXJ

Estimated costs to complete 2,000,000 260,000
Cash collected 400,000 4,350,000 2,975,000

Using the percentage-of-completion method, what is the realized gross profit

(loss) for the year ended December 31, 20 I 3?
a. P325,000
b. P (35,000)
c. P (10,000)
d. P240,000

10-20: The Jawo Construction Company was the low bidder of an offic~ building
construction contract. The contract bid was P6,000,000, with an estimated
cost to complete the project of P5,300,000. The contract was 33 months starting
January I, 2010. The company uses percentage-of-completion, cost-to-cost
method of estimating profits. A record of construction activities for the year
2010to2013 follows: •
Actual cost Progress
Year Current Year Cash
Billings Receipts
2010 P3,400,000 P3,200,000
2011 2,550,000 P3,000,000
2,000,000 2,000,000
2012 200,000 800,000
2013 0 600,000
0 400,000
The estimated cost to complete the contract at the end of each a
are: . ccount·1ngpen·00

2010 Pl,600,000
2011 150,000
2012 0
 /.,ml }!, TC'rJJJ C() ll \ fruu i on Contrau s (PA S II)
449
No . /0-20: Continued

~h_at 1~_the balance of the Construction in Progress account (net of progress

b1Jlmgs) at the end of each year?
2010 2011 2012
a. P880,000 P650,000 p 0
h. P200,000 P750,000 P(J00,000)
c. P200,000 P750,000 p 0
d. p 0 p p
0 0

l 0-21: Yokomo Construction Company was awarded a contract to construct a new

sewage system for MWSS for a price of P3,250,000. The original estimate of
the cost to complete the contract was P3,000,000. The contract provides for
periodic billings. A final billing equal to 25% of the contract price is to be made
upon final inspection and acceptance by the MWSS.

The construction record was as follows:

Date Cost to date Estimated cost to complete
December 3 1, 20 I 1 PJ ,075,000 Pl ,612,500
December 3 J, 2012 2,625,000 750,000
December 3I , 2013 3,425,000 -0-

What is the balance of the Construction in Progress account, net ofbillings in the
2ol2 Statement of Financial Position?
a. P875,000 current liability.
b. p J,362,500 current asset.
c. P287,500 current asset.
d. P62,500 current asset.

10-22 . The Tamiya Builders was recently ~ward~ a P2,8?0,000_co~tract to construct

· b . mall for Rustan Inc. Tanuya Builders estunates 1t will take 42 months
5 0
Je
a PPf the contract. The company uses the cost-to-cost method to estimate
to compTh ~ no wing data are available for the year 2010 to 2013:
profits. e 10
Actual cost each year Estimated cost to complete
Year
p I ,300,000 PI ,360,000
2010 660,000 780,000
2011 480,000 380,000
2012 340,000 -0
2013
450 f.'/u11Jt1. ·r I()

No . 10-22: Continued
How much is the realized gross profit (loss) in 20 12?
a. P(20,000)
b. P(62,918)
c. P 22,918
d. P(22,918)

10-23: The following data pertains to Havaianas Builders, Inc. which uses
the perce ntage
of completion method:
Project A Project B Projec t C PmjectD
Contract price P2,900 ,000 P3,400,000 Pl ,700,000 P2,000,000
Cost incurred, 20 12 1,680,000 1,440,000 320,000 - 0-
Estimated ·cost to complete, 2012 1,120,000 1,760,000 960,000 - 0-
Cost incurred, 2013 960,000 680,000 863,000 560,000
Estimated cost to complete, 2013 - 0- 1,360,000 117,000 1,040,000

General and administrative expenses for 2012 and 2013 were P 120,000 for
each year.
How much is the net income for the year ended.
2012 2013
a. P135,000 P309,000
b. P135,000 P489,000
c. P195,000 P429,000
d. P369,000 Pl35,000

10-24: Joys Construction Compa~y has used the cost-to-cost method of comp
uting
the percentage of comple~10n to recognize revenue. Total contract price was
P 10,000,000 . The follow mg data are available from 2011 to 2013 :

20JJ 2012 20 13
Reali~ed gross profit (loss) , current year
Cost incurred each year P 200,000 P700,000 P( I 00,000 J
1,800,000 ?
4,100,000
How much is th e total estimated gross profit on the proj ect by the end of201
2?
a. Pl, 750,000 .
b. P2,250,000
c. PJ,500,000
d. Pl,] 66,667
 l.,ong h rm r_ ·o 11., rru r rio11 Comracrs (PAS I /
_J
451
10-lS: Jet Co n stru ction Con1pany began ope
ration on January 2. 20 13. During the
year, the co~ pan y entered into a contract with
Angel Con1pany to construct a
manufactunng facility. At that time Jet estimated
that it would take five years to
complete the _facility at a total cos; of p 1,800.00
0. The total contract price for
~he construction of the facility is P2,500.000.
During the year, the con1pany
inc urr ed P44 0,0 00 in construction costs related
to the construction project.
The e~timated cost to complete the contract is
P 1,560,000. Angel Co111pany
was billed and paid 30% of the contract price
subject to a 10% retention.
Usi ng the per cen tag e of completion metho
d, how 1nuch is the exc ess of
Co nst ruc tion in Progress over Contract Bil
lings or Co ntra ct Billings ove r
Co nst ruc tion i11 Progress?

lL P 125 ,00 0 (currettt liability)

b. P 125,000 (current asset)
c. P20 0,0 00 (current asset)
d. P20 0,0 00 (current liability)

10-26: Me ga Construct Inc. is executi~g a ~ig

antic project of contracting the tallest
building in Quezon City. The proJecl 1s ~xpected
to take three years to complete.
Th e com pan y has signed a fixed pnce contrac
t of P 120 ,00 0,0 00 for the
construction of this prestigious tower.

The details of the costs incurred to date in the firs

t year are:
Site labo r cost s . PI0,000,000
Cos t of con stru ctio n ma ten al . 30,000,000
Dep rec1.a t·10 n of special plant .and equipm ent
. .
. con trac ting to buil d the building
use.d m d sell 5,000,000
Marke· ting an ing cost s to get t he b m·1d·mg
in the city the righ t exp osu re
10,000,000
Tot al P55,000,000

Tot al est1. ma ted cost s to com plet e P55,000,000

How much pro fit · to be recognized in the first year of construction?

1 15

lL p 9,000,000
b. PJJ,000,000
c. p 6,000,00 0
d. p 9,900,000
452

10-27: On Jan uary 2 20 13, a fire gutted the office building •Jf B ~~ (.\.1nst~uc
1
Company and destroye d all the files in the ac....-orn1tant -~ tio\\
desk . l h~ P~'t:Stdet'.t 0t
the compan y has contacted you to help reco nstruct the
contnh~t m1 ormat1on.
The following data were take n from the salYag~d files:

Dect·mba 31
: 011 :v,:
Architect 's es tima ted cost to ~omplcte Pl2.450.000 P~.000.000
Costs incurred 3.700.000
Percentage of comple tion 60° 0
Inco mc reco gnized to date 500.000 1.200 ,000

What is the percentage of completion in 2011 of this cons

truction contrnct?
a. 40%
b. 20%
c. 25%
d. 30%

l 0-28: Joemig Construction Company uses the percenta

ge of completion method of
accounting. The company started work on two job sites
duri ng 2012. Data
relating to the two jobs are as follows:

Acw al Cos r Estim ated cost

Contract Price Dec. 31. 201 :! w comp /1.!te
Contract 1 P600 ,000 PlS0,000 P 150.000
Contract 2 450,000 87,500 162,500
1n 2013, Contract 3 was started for a contract price of P900
,000. As of December
31, 2013 the following data are given:

Actu al Cost Estim ated cost

l ll/0/ 2 to 12/31 1013
to comp lete
Cont ract l
Cont ract 2 P280 ,000 P70,000
Cont ract 3 180,000 120,000
180,000 320,000
What is the balance of Construction in Progress account on
a. Pl,0 74,0 00 December 31 , 2013?
.
b. Pl,3 14,0 00
c. p 640 ,000
d. p 854 ,000
 453
t0-29 : Jing Construction Com · ~ . . sites
· dunn · g 201· 3 A
. . · pany started work on three Job . ny
costs incurr
_ ed arc c"·p t d b - · · 1 t· · bs
· " ec e • to c recoverable . Data re lat mg tot 1c l 1ree JO
are as 1o1lows:

Contract
- - ___ ,_ _______ ......-
Site Cost Estimated Cost
Price In curred to Comp /(,'fe Billings Co llectio nJ·
Bicol P875,000
Davao P656,2 50 P875,000 P875,000
1,225,000 175,000
Aklan P700,000 175,0000 175,000
437,500 175,000 175,000 262,500 17S,OOO

What is the balance of the Construction in Progress accou nt on Dece mber 31,
2013 under the fo11owing mt:thods? .
Perce ntage of Con,pletion Zero Profi t
a. P26,2 50 due from P87,500 due to
b. P26,2 50 curre nt liability P87,500 curre nt asset
c. P87,5 00 due from P26,250 due to
d. P87,5 00 due from P26,250 curre nt asset

10-30: On Janua ry 2, 2013, JJ Construction Comp any of Makati City enters into a
contr act to const ruct a 5-stor ey buildi ng for P40,000,000. During the
const ructio n period many change orders are made to the original contract. All
of the chang es were accepted by both the custo mer and the contr actor. The
follow ing schedule summarizes the change orders in 2013:

Cost incurred Estimated costs Contr act

in 2011 to complete Price
Basic contra ct P8,000,000 P28,000,000 P40,000,000
Chang e order # 1 50,000 50,000 125,000
Chang e order #2 50,000
Chang e order #3 300,000 300,000 600,000
Chang e order #4 125,000 100,000

Unde r t h e perce ntage of comp letion metho

d d
d, what is the gross profit to be
h
.
recognized on Dec embe r 3 1, 2013 (roun e to t e neare st peso) ?
a. P907 ,830
b. P888 ,889
c. P909 ,063
d. P970 ,830
4b4

t 0-31: On Ju]y 1, 20 13, North Construction Corporation contracted to build an 0ffice

building for SM, lnc. for a tota] contract price of P2~950,000 . Esti nrnted total
contract costs is P2,600,000. Costs incurred to date re lated to the proj ect are
as fol1ows:

Cos t of direct material s used P200.000

C o s t of direct labor, including s upe rvision of PS0,000 150~000
Cos t of indirect materi a ls used 55 .000
Cost in c urred in ob tainin g the contract pre vio us ly
written off 70,000
Deprec iation of equipment used on the projec t 120,000
Payroll of de s ign and technical department allocated to
th e con tract 80.000
In s uranc e cos ts (2/3 for other project) 180.000
Costs of contrac ted re searc h and development 105,000
Depreciation of idle equipment not used on a
particular con tra ct 60,000
Selling cos ts 45,000
Genera! and administrative expenses specifically
included under the term of the contract 30,000
Borrowing cost incurred du~ing the construction period 130,000
Advances made to subcontractors 100,000

Using the percentage of completion method, what the is the realized gross profit
to be recognized for 2013?

a. P125,195
b. P104,335
c. Plll,055
d. P134,610
 l,,111>7. Terni Co 11.Hr11('[io 11 Co ,,,r
acts ('P.A.S. I/)
455
10-32: Eas tCo nstr ucti o C , .
· D · , n omp any has two construction . .
20 13 proJects which commenced
m · ata for the two projects are as fo1lows:

Project I Project 2
Contract price
Co~ ts incurred during 20 13 P420,000 Pl50,000
Estim ated costs to complete 120,000 140,000
Progress billin gs during 2013 60,000 35,000
Collectio ns during 2013 125,000 145,000
Exp enses 120,000 140,000
10,000 5,000

I. Usi ng the percentage of completion method, wha

t is the net income (loss)
for the yea r end ed Dec emb er 31, 2013?

lLPl2 0,0 00
b. PJS0,000
c. Pl2 5,0 00
d. Pl3 5,0 00

2. Und er the zero profit method, wha t is the net inoc

me (loss) for the yea r
end ed Dec emb er 31, 2013?

lL P(30,000J
b. P 30,0 00
c. P(25,000)
d. P 25,0 00

20-33: Wes t Constructors has the following data rela

ting to its jobs in progress:

Proj ect Actu al Cost Estimated Cost Contract Price

AA Pl 7,512,000 P350,240,000 P384,000,000
IE · 22,914,000 30,552,000 35,000,0000
X 107,730,000 143,640,000 175,000,000
DD 45,600,000 91,200,000 99,400,000
 Chapter JO
456

_¥a I lr-33: Contimred

~ . . . b b the percentage of completion method.
The company accounts 1or its JO s Y . . d h b 1
.Billings are
done at 20% down payment upon contract s1gmng an t e a ance
is bill~ according to the percentage of completion.

\Yhat is the amount of the Construction in Progress account net of contract

bllings?

a. P93,400,000 due to
b. P93,400,000 due from
c.. P 177, 496,000 due to
d. Pl 77, 496,000 due from

10-34: On September 15, 2013 , Ace Builders, Inc. won the bid for the construction of
a 1,000 room hotel for Victoria Hotels, Inc. on the reclamation area for P 1.2
billion. On the terms of payment, parties agreed to the following:

a. One percent mobilization fee (deductible from the final bill) payable within
fifteen days after the signing of the contract.
a Retention of l 00/o 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 2013, the company had presented only one progress billings for
10% completion which Victoria Hotels, Inc. evaluated and accepted on
December 28 for payment in January. The Company used the percentage of
completion method of accounting.

How much fee was received by Ace Builders, Inc.?

a. P 9,800
h. P12~000,000
c. PJ0~00,000
d. P 1,200,000
 457
t 0-35: OnJanuary 15, 20 , . . . .
stadium. The " .11 ' South Builders, lnc. won a bidding to build an athletic .
scheduled for PlOJ
comect
l · w-:
. c'\s to bc l)U1·1tat a total cost of, PS,500,000 and was
stated tha t Soutl BP _etton by September 1, 20 13. One clause of the contr
1 act
bid price for· "a'h utlders, Inc. was to deduct P 15,000 from the P6,600,000
six v\'ceks. c, c week that comp letion ·
was delayed. Comp leteion was delayed

Data for the tlu·ee y

ear construction period follow s:

201] 2012 2013

Co~ts incurred each year
Estim ated costs to complete Pl ,782,000 P2,068 ,000 Pl ,650,000
Contract billings each year 3,618,000 1,650,000
Cas h collec tions each year 1,200,000 l ,900,000 ?
Opera ting expenses 1,000,000 1,800,000 3,7 10,000
100,000 90,000 70,000

1· What is the net income for the year 2012, using the percentage of comp
letion
method?
a. P284,000
b. P374,000
c. P248,000
d. P743,000

2. Using the percentage of completion method, what is the balance of

the
Construction in Progress account net of billings at December 31, 2012?
a. PJ,520,000
b. Pl, 784,500
c. Pl,52 0,50 0
d. PJ,250,000

3 _ Under the zero Profit method, what is the balance of the Construction in
Progress account net of contract billings as of Decemoer 31, 2012?

a. P750,000
b. P520,000
c. P450,000
d. P570,000
 Chapter 10
458

Pl~OBLEl\'IS

Probl~nl I 0-1
. . .. d . nstruct a building for P450,000.
111e Builders Construction Company l-~nt:Iacte to co d • o13. Cost infonnation
Construction began in 2012 and the proJect was cm:npiete 10 2
for the project is as follows:

2012 2013

P200,000 Pl20,000
Costs incurred
Esti1nated costs to complete 100,000

~ • method 1or
Builders uses the percentage-of-completion "" re cognizing income on the
contract

Required: . .
(a) Determine the an1ount of income that the company should recognize m 2012 and
2013.
(b) Prove the amount of income you have computed in (a) by computing the ~ot~l
income on the contract and comparing it with the incomes you have computed 1n
2012 and 2013.
(c) Prepare the journal entries required at the end of each year to recognize that year's
income.

Problem 10-2

R. Ramos Construction Company began operations on January 1, 2013. During the

year, R. Ramos entered into a contract with LUE Company to construct a manufacturing
facility. At that time, R. Ramos estimated that it would take five years to complete the
facility at a total cost of P4,800,000. The total contract price for the construction of the
facility is PS,800,000.

During 2013 R. Ramos incurred P 1,250:000 in construction costs related to the project.
Because of rising material and labor costs, the estin1ated cost to complete the contract
at the end of2013 is P3,750,000. LUE was billed and paid 30% on the contract price
in accordance with the contract agreement.
 Lor1g Term Conslr11ctiQn
c1.,· (n
( ~C)lltt·u
·· ,As. llJ
459
probl em 10-2: Conti nued

Required: Prepare schedules

for the year ended Dece . b to com. pute'" the amo
. . .. .
unt of gros8 profi t to the recognized
w1completed contrnct ii m er 3. .I , 2013,_ and the umount to be
shown as "cost of
in excess of related cos~~~tss,.o~relatcd billin gs" or'"billings 01~ w1~ump
l~l
(a) Zero Profit Method December 31, 20 l 3, under each ot the foJlowmg contracts
mc.,1hods:
(b) .Perc~ntage-of-co1npletion method
ProVIde supporting computations ..
. . .
Problem 10-3

'.P ~o~ sf~tion C~mpany has contracted to build an office building. The
ts sc e u e to b~~n on January 1, 2010, and the estimated time of com construction
pletion is July
1, 2013 · The building cost is estimated to be P50,000,000 and this will
be billed at
P55,000,000. The following data relate to the construction period. .

2010 2011 2012 20/3

Cost to date Pl5,000,000 P25,000,000 P35,000,000 PS0,000,000
Estim ated cost to comp lete 35,000,000 25,000,000 15,000,000
Prog ress billin gs to date 7,000,000 20,000,000 35,000,000 55,000,000
Cash colle cted to date 7,000,000 18,000,000 30,000,000 55,000,000

Required:
(a) Compute the estimated income for 2010, 2011, 2012, 2013, assu
ming that the
percentage-of-completion method is used.
(b) Prepare the necessary journal entries for PP Construction Com
pany for the year
2012 and 2013.

Problem 10-4
LL Construction Comp~ny recognizes income under the percentage-o
f-completion
method on its long-tenn contracts. During 2011, the company ~ntered
in a fixed-price
contract to construct a bridge for P 15,000,000. Contract costs incurred
and estimated
costs to complete the bridge were:
Cumu lative Estim ated
Contract Costs Costs
Incurred to Comp lete

At Dec. 31, 2011

p 1,000,000 PS,000,000
5,500,000 5,500,000
At Dec: 31, 2012
10,000,000 2,000,000
At Dec. 31, 2013
 460 ( ·Jwpt c,· I ()

Problem 10-4 : Co 111i11u ed

Required:
(a) Prepare a schedule ta dc
tem1ine
of each year. (Round perc en th e estim ated percentage of co m .
plet
. .
ion at the end
(b) Prepare a schedule ta de ta ge ta the ne arest two decim
a l po ints.)
(c) Prepare j a urn al en tri es tcm1 ine th e amount of incomt.: to be rccog1uzcd each
Ia re year.
completion method, ass um co nl transac tians for 20 I I us mg the p_crccn tage-of-
in g that LL bi lied its client
Pl ,2 00 ,0 00 ha s been co lle P 1,3 25. 000 m 20 11 which
ct ed by th e end of th e ye ar.
Prob lean l 0-S
GG Mall builders was recent
mall for Rustan Inc. GG Mallly awarded a P14 ,000,000 contract to construct a shop
Builders estimates it wi II take ping
contract. Th e company us 42 months to complete the
es the cost-to-cost metho d to es tim ate profits.
The following information
de tails the actual and estit na
tc d co st s for th e ye ar 20
2013: l 0-
Actual Cost- Es tim ated Cost
Year Cu rrent Year · to Complete
2010 P6,500,000 P6,800,000
2011 3,300,000 3,900 ,00 0
2012 2,400,000 1,900,000
2013 1,700,000
- 0-
Required:
1. Compute the revenue, co
st, and
2~10-2013 underthe percen gross profit t? be re co gn iz ed fo r ea ch of th e ears
2. G1ve the journal entries tage-of-camplettan method
from(!). for each of the years 20 l0 y
-2 01 3 {0 re co rd th · c
· ·
e m,onnat1o n
Problem 10-6
The Po w Construction C
contract. er om pa ny w as th e low bi dd
The contract bid w er
as p 000 000 .th . .
projectafPS,300,000. Thec 6
ontract'peri~d w :~ :~ :~
_on a spec1a hzed eqm.pment
The company uses the cost- m ;: e? co st to complete
to-cost method ta es3timate the
pr~fit~'.nnmg January I, 20
A record of construction ac I 0.
tivities for the years 2011
-2013 follows:
Actual Cost- Progress
Year Current Year Cash
Bi lli ng s Re ce ip ts
2010 P3,400,000
2011 P3,200,0 00
2,550,000 P3,000,000
2,000 ,00 0
2012 20 0,0 00 2,0 00 ,00 0
800,000
2013 -0 -- 600,000
·--0 400,000
I on~ 1~'1'111 ( ~OII Slrli C'lio ,1 Cm1trac rs ( n4.s I I ) 461
Pmbh:m I 0,6: Co11tim,ed

The esti 1nated, cost

' to co n1p
, 1ete
, t1c
1 contra ct at the end of each · peno
· ·d 1·s.·
accoun tmg
20 11 P2, l 00,000
20 10 150,000
201 2
- 0--
Required:
l. \Vhat is the revenue, cost, and gross profit recognized for each of the years 2010-
2~ 12 un~er the percentage-of-completion n1ethod?
2• Gt ve the Journal entries for each of the years 20l0-2012 to record the information
from (1). ·
3• Give the journal ~ntries in 2013 to record any collections and to close out all
construction accounts.

Probl~ru I0-7

The Lahar Construction Corporation contracted with the City of Pampanga to construct
a dan1 at a price of Pl6,000,000. Lahar expects to earn Pl,520,000 on the contract.
The percentage-of-completion method is to be used and the completion stage is to be
detennined by estimates made by the engineer. The following schedule summaties the
activities of the contract for the years 201.1-2013:

Engine ers
Estimated Cost Estimate of Billings on Collect ions
Year Cost Incurre d to Complete Completion Contra ct on Billings
2011 P4,600,000 P9,640,000 31% P5,000,000 P4,500,000
2012 4,500,000 5,100,000 58% 6,000,000 5,400,00
2013 5,250,000 -0- 100% 5,000,00() 6,100,000

Required:
1. Prepare 8 schedule showing the re ve_nue, co st, and .the gross profit e~ed each
year under the percentage-of-comp1et~on met1100 , usmg the engineer's estimate as
the measure of completion to ~e applied to revenues and costs.
2 _ Prepare all journal entries requ 1red to re~ecthtthe contracfit. hod. ed
3 p · umal entries for 20 l 3, assumm g e zero pro 1t 1net 1s us .
· Hrepare JOld theJ·oumal entries in (2) differ ifth.e actual costs in.curredwere used to
4. ow wou . . d fh . , . ?
calculate cost for the penod mstea o t e engineer s est1n1ate .