A building contractor has a contract to construct a large building.

It is estimated that the building

will take 2 years to complete. Progress billings will be sent to the customer at quarterly
intervals. Which of the following describes the preferable point for revenue and gross profit
recognition for this contract?

A. After the contract is signed.

B. As progress is made toward completion of the contract.
C. As cash is received.
D. When the contract is completed.

2. Matibay Company’s construction projects extend over several years, and collection of
receivables is reasonably certain. Each project has a firm contract price, reliable estimates
of the extent of progress and cost to finish, and a contract that is specific as to the rights and
obligations of all parties. The contractor and the buyer are expected to fulfil their
contractual obligations on each project. The method that the company should use to account
for construction revenue and gross profit is

A. Installment sales.
B. Percentage-of-completion.
C. Completed-contract.
D. Point-of-sale.

3. How should the balances of progress billings and construction in progress be shown at
reporting dates prior to the completion of a long-term contract?

A. Progress billings as deferred income, construction in progress as a deferred expense.

B. Progress billings as income, construction in progress as inventory.
C. Net, as a current asset if debit balance and current liability if credit balance.
D. Net, as gross profit from construction if credit balance, and loss from construction if
debit balance.

4. The calculation of the gross profit recognized in the third year of a 5-year construction
contract accounted for using the percentage-of-completion method includes the ratio of
A. Total costs incurred to date to total estimated costs.
B. Total costs incurred to date to total billings to date.
C. Costs incurred in year 3 to total estimated costs.
D. Costs incurred in year 3 to total billings to date.
5. A company used the percentage-of-completion method of accounting for a 4-year
construction contract. Which of the following items should be used to calculate the gross
profit recognized in the second year?

Gross Profit Progress Billings

Previously Recognized To Date____
 A. Yes Yes
B. No Yes
C. Yes No
D. No No

6. A company used the percentage-of-completion method to account for a 4-year construction

contract. Which of the following should be used in the calculation of the gross profit
recognized in the first year?

Progress Collections on
Billings Progress Billings
A. Yes Yes
B. Yes No
C. No No
D. No Yes

7. Mahusay Construction Company has consistently used the percentage-of-completion method

of recognizing gross profit. During year 1, Mahusay entered into a fixed-price contract to
construct an office building for P10 million. Information relating to the contract is as
follows:

December 31________
_ Year 1 _ Year 2__
Percentage of completion 20% 60%
Estimated total costs at completion P7,500,000 P8,000,000
Gross profit recognized(cumulative) 500,000 1,200,000

Contract costs incurred during the year 2 were

A. P3,200,000
B. P3,300,000
C. P3,500,000
D. P4,800,000

8. Masipag Corp. started a long-term construction project in year 1. The following data relate
to this project:

Contract Price P4,200,000

Costs incurred in year 1 1,750,000
Estimated costs to complete 1,750,000
Progress billings 900,000
Collections on progress billings 800,000
 The project is accounted for by the percentage-of-completion method of accounting. In
Masipag’s year 1 income statement, what amount of gross profit should be reported for this
project?

A. P350,000
B. P150,000
C. P133,333
D. P100,000

9. Matiyaga Co. recognizes construction revenue and gross profit using the percentage-of-
completion. During year 1, a single long-term project was begun, which continued through
year 2. Information on the project follows:

Year 1_ Year 2_
Accounts Receivable from
construction contract P100,000 P300,000
Construction expenses 105,000 192,000
Construction in progress 122,000 364,000
Partial billing on contract 100,000 420,000

Gross profit recognized on the long-term construction contract in year 2 should be

A. P50,000
B. P108,000
C. P120,000
D. P228,000

10. Maganda Construction, Inc. has consistently used the percentage-of-completion method of
recognizing gross profit. During year 1, Maganda started work on a P6 million fixed price
construction contract. The accounting records disclosed the following data for the year
ended December 31, year 1:

Costs incurred P1,860,000

Estimated costs to complete 4,340,000
Progress billings 2,200,000
Collections 1,400,000

How much loss should Maganda have recognized in year 1?

A. P460,000
B. P200,000
C. P60,000
D. P0