Chapter 08 dayag

7/23/2019 Chapter 08 dayag

http://slidepdf.com/reader/full/chapter-08-dayag 1/24

Chapter 8

Problem I

1. Input Measure - Percentage of Completion Method (Cost to Cost Method)

2008:

Contract price P 1,800,000

Actual costs to date P 450,000

Estimated costs to complete 1,200,000Total estimated project costs 1,650,000

Estimated total gross profit 150,000

Percentage of completion:

P450,000 / P,1650,000 27.27%

Gross profit recognized P 40,905

2009: P 1,800,000

Contract price

Costs incurred:

2008 P 450,00

2009 1,100,000

Total cost 1,550,000Total gross profit 250,000

Recognized in 2008 40,905

Recognized in 2009 P 209,095

2. Input Measure - Cost Recovery Method

2008: (all costs not yet recovered) P -0-

2009:

Contract price 1,800,00

Costs incurred: 2008 P 450,000

2009 1,100,000

Total cost 1,550,000

Total gross profit P 250,000

Problem II

1. 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 Method

Years Gross Profit (or Loss) Supporting computations

2008 P -0- ( P108 – 90) = P18 anticipated grossprofit, so no need to recognized agross 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 III

1. Journal Entries

a. Input Measure – Percentage of completion – (cost-to-cost method)

The following analysis is to determine the percentage of completion:20x3 20x4 20x5

Contract price:

Initial amount of contract…………... P528,000 P528,000 P528,000

Variation……………………………….. _______- __12,000 __12,000

Total contract price…………………….. P528,000 P540,000 P540,000

Costs incurred each year……………… P 126,048 *P244,032 P121,920

Add: Costs incurred in prior years……. _______- _126,048 _370,080

Actual costs incurred to date (1)…..… P126,048 *P370,080 P492,000

Add: Estimated costs to complete….. _358,752 _121,920 _______-

Total estimated costs (3)……..………… P484,800 P492,000 P492,000

Estimated gross profit…………………… P 43,200 P 48,000 P 48,000

Percentage 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 incurrent year

Revenue (P528,000 x 26%) P 137,280 - P 137,280

Costs/Expenses (P484,800 x 26%) 126,048 - 126,048

Gross Profit (P43,200 x 26%) P 11,232 - P 11,232



Revenue (P540,000 x 74%) P 399,600 P 137,280 P 262,320

Costs/Expenses (P492,000 x 74%) _364,080 _126,048 238,032

Gross 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 140,400

Costs/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 12,000

Total contract price………………………… P528,000 P540,000 P540,000

Costs incurred each year…………………. P126,048 P240,032 P121,920

Add: Costs incurred in prior years……….. _______- _126,048 _370,080

Actual costs incurred to date (1)…..……. P126,048 P370,080 P492,000

Add: Estimated costs to complete……… _358,752 _121,920 _______-

Total estimated costs (3)……..……………. P484,800 P492,000 P492,000

Estimated gross profit……………………… P 43,200 P 48,000 P 48,000

Percentage of completion (1) / (3)……... ____26% ____74% ___100%

Gross profit to date…………………………. P 11,232 P 35,520 P 48,000

Less: Gross profit in prior years……………. _______- ___11,232 __35,520

Gross profit in current year -% of completion P 11,232 P 24,288 P 12,480

Gross 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 20x5

1. To record costs incurred:

Construction In Progress*………...... 126,048 232,032 127,920

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……………… 126,048 238,032 127,920Construction 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 MethodThe 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 __12,000

Total contract price…………………….. P528,000 P540,000 P540,000

Costs incurred each year……………… P126,048 P244,032 P121,920

Add: Costs incurred in prior years……. _______- _126,048 _370,080

Actual costs incurred to date……....… P126,048 P370,080 P492,000

Add: 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 126,048

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

* equivalent to costs incurred



Revenue* P 364,080 P 126,048 P 238,032

Costs/Expenses _364,080 126,048 238,032

Gross Profit P 0 P 0 P 0

* equivalent to costs incurred



Revenue (P540,000 x 100%) P 540,000 P 364,080 P 175,200

Costs/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 12,000

Total contract price………………………… P528,000 P540,000 P540,000

Costs incurred each year…………………. P 126,048 P244,032 P 121,920

Add: Costs incurred in prior years……….. _______- _126,048 _370,080

Actual costs incurred to date ……...……. P 126,048 P370,080 P492,000

Add: Estimated costs to complete……… ____ _? ____ _? _______-Total estimated costs …….…..……………. P ? P ? P492,000

Estimated gross profit………………………. P 0 P 0 P 48,000

Percentage of completion……………….. _ -___ _ -___ ___100%

Gross profit to date…………………………. P 0 P 0 P 48,000

Less: Gross profit in prior years……………. _______- _______- __ 0

Gross 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 20x5

Accounts receivable………………………. P 24,000 P 36,000 P -Other receivables:

Construction In Progress………………… P399,600

Less: Progress billings……………………. _384,000Gross amount due from customers…... P 15,600

Raw 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 x320x4 CI 238,032 240,000 20x4

Pr 11,232


Pr 12,480

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

where: CI - cost incurred each yearPr - profit

b. Input Measure – Cost Recovery Method

Current Asset:20x3 20x4 20x5

Accounts 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 P384,000Less: 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 20x3Pr 0


Pr 0


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 140,400

Less: Costs / Expenses……………………... _126,048 _238,032 _127,920

Gross 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 175,920

Less: Costs / Expenses……………………... _126,048 _238,032 _127,920

Gross Profit……………………………………. P 0 P 0 P 48,000

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

Estimated costs to complete 1,200,000

Total estimated project costs 2,700,000

Estimated loss, recognized in 2008 P (200,000)



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)

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

Problem V

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)

2008:Construction in progress 1,500,000

Various credits 1,500,000

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

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

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

2009:Construction in progress 1,300,000

Various credits 1,300,000

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

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

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

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



Item to compute Answer

Total revenue recognized during 2009 (w): P50 million

CIP contains cost + gross profit = revenue, so w = P50 P 15 million

Gross profit recognized during 2009 (x): P50 – P35 = P15

Billings 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 VI

Item to compute Answer

Cash 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 – P22gross 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 VII

1.Progress billings on construction contract P562,000Less accounts receivable 150,500Cash collected in 20x4 P411,500

2.Gross profit from construction contract + Construction in progress = Revenue for 20x4P301,000 + P602,000 = P903,000P903,000/P7,525,000 = 12% Percentage completed in 20x4

P301,000/.12 = P2,508,333 Estimated income on construction contract

Problem VIII

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

20x4 20x5 20x6Contract 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 Currentat Dec. 31 Years Year

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

20x5: Revenue P235,000 P130,000 P105,000



Costs (230/245 x 245) 230,000 110,000 120,000Gross profit (loss) P 5,000 P 20,000 P(15,000)

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

20x4 20x5 20x61. 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 Method

20x4 20x5 20x61. Revenue recognized during

the year P110,000 P120,000 P20,0002. Gross profit recognized during

the year 0 0 5,0003. Balance in the construction in

progress account at Dec. 31 . 110,000 230,000 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) (15,000) (20,000) 0

Problem IX

1. 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 Currentat Dec. 31 Years Year

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

2006: Revenue ............ P232,500 P157,500 P 75,000Costs ............ 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 17,500Costs ............ 265,000 252,500 12,500Gross profit (loss) ............ P(15,000) $(20,000) P 5,000

20x4 20x5 20x61. Construction costs (expense)

recognized during the year P150,000 P102,500 P12,5002. Gross profit recognized during

the year 7,500 (27,500) 5,0003. Balance in the construction in

progress account at Dec. 31(after closing entries) 157,500 230,000* 0

4. Balance in the progressbillings account at Dec. 31 . 110,000 230,000 0

5. Net (3-4) or (4-3) – due from (due to) 47,500 0 0

Balance in accounts receivableat 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 Method

20x4 20x5 20x61. Construction costs (expense)

recognized during the year P150,000 P 80,000* P20,000**2. Gross profit recognized during

the year 0 (20,000) 5,0003. Balance in the construction in

progress account at Dec. 31(after closing entries) 150,000 ***230,000 0

4. Balance in the progressbillings account at Dec. 31 . 110,000 230,000 0

5. Net (3-4) or (4-3) – due from (due to) 40,000 0 0

Balance in accounts receivableat 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. aCosts 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 M

Add: Estimated cost to complete

Total estimated costs P 18 M

Percentage 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. bP7,200,000

——————————— 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. dUnder the percentage of completion method, the Construction-In-Progress account is usedfor cost incurred during the year and any realized gross profit (loss). The following T-account isprepared:

Construction-In-ProgressCI in 2004 210,000RGP in 20x4 (?) 34,000

End of 20x4 244,000CI in 20x5 384,000RGP in 20x5 (?) 100,000

End of 20x5 728,000

5. b P1,200,000

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

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

7. a20x4

Contract Price P4,800,000 x: 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

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

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



Items 10 and 11

No number requirement identified, if percentage-of-completion then the answer would (a)

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. Cost Recovery Method - 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 shouldbe realized.

12. c P600,000 —————————— x (P1,500,000 – P1,000,000) = P300,000

P600,000 + P400,000

(P1,500,000 – P1,050,000) – P300,000 = P150,000.13. a

Contract Price P6,000,000Less: Total Estimated Costs

Costs Incurred-1/10/x4 to 12/31/x5 P3,600,000Add: Estimated costs to complete 1,200,000 4,800,000

Less: 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

14. b20x4: Cost to date – P7,500,000 x 20% P1,500,00020x5: Cost to date – P8,000,000 x 60% 4,800,000

Cost incurred during 20x5 P3,300,000

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

16. bCosts Incurred 50,000

Contract price………………………………………. P260,000

Cost incurred each year………………………….. P 50,000

Add: Cost incurred in prior year…………………. -0-

Costs incurred to date…………………………….. P 50,000

Add: Estimated costs to complete……………… 150,000

Total estimated costs………………………………. P200,000

Estimated gross profit (loss)………….……………. P60,000)

Multiplied by: percentage of completion……….. __50/200 15,000

Construction In Progress account 65,000

Less: Progress billings 30,000Construction In Progress account (net) or Due from customers 35,000

17. d - P2,040,000 – P980,000 = P1,060,000 (revenue limited to costs incurred since cost-recoverymethod must be used).

18. a - P2,040,000 – (P1,000,000 + P1,000,000) = P40,000.19. c - (P1,000,000 + P1,000,000) – (P648,000 + P1,280,000) = P72,000.



20. d

21. d

Recognized gross profit (loss) to date………….. P( 100,000)

Less: Recognized gross profit in prior years……. ____20,000

Recognized gross profit each year…………….. P (120,000)

22. b = P5,600,000 – (P2,560,000 + P3,280,000) = – P240,000.

23. c

Prior year Current year

Contract price………………………………………. P7,000,000 P7,000,000

Cost incurred each year…………………………..

Add: Cost incurred in prior year………………….

Costs incurred to date…………………………….. P5,000,000

Add: Estimated costs to complete……………… 2,800,000

Total estimated costs………………………………. P7,800,000

Estimated gross profit (loss)………….……………. (P 800,000)

Multiplied 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)

24. c P7,440,000 .30 = P2,232,000.

25. d (P7,200,000 .75) – (P7,100,000 .30) = P3,270,000.

26. b (P7,440,000 .75) – (P620,000 8) = P620,000 debit.

27. c P7,440,000 .25 = P1,860,000

P7,500,000 – (P7,200,000

.75) = P2,100,000.

28. b (P9,000,000 – P8,250,000) (P3,795,000 ÷ P8,250,000) = P345,000.

29. c P3,795,000 + P345,000 = P4,140,000.

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

31. b P240,000 – P100,000 = P140,000.

32. 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.

33. c (P6,325,000 ÷ P13,750,000) × P1,250,000 = P575,000.

34. a (P6,325,000 ÷P13,750,000) × P1,250,000 = P575,000.



P6,325,000 + P575,000 = P6,900.000.

35. 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 costsincurred as long as it is probable will be recoverable.

36. b - 20x5: P12,000,000 > P11,870,000, No loss;20x6: P12,000,000 – P12,400,000 = P400,000 loss.

37. a - Revenue recognized to the extent of costs incurred

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

39. c P1,500,000 – P820,000 = P680,000.

40. aUnder 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.

41. cCosts of construction 1,200,000

Construction in progress 800,000

Revenue for long-term contracts 2,000,000

Percentage 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

42. a

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

43. bCosts of construction 600,000

Construction in progress 400,000


Total revenue P3,000,000 revenue previously recognized P2,000,000 = Revenue torecognize this year P1,000,000.

Cost recognized = P600,000Gross profit recognized = P1,000,000 P600,000 = P400,000

44. dCosts of construction 1,200,000




Under cost recovery method, revenue should be recognized up to the extent of costsincurred.

45. bCosts of construction P1,200,000Profit 0

Construction In Progress P1,200,000Less: Progress billings 1,500,000Excess (Due to customers) P( 300,000)

46. dCosts of construction 600,000

Construction in progress 1,200,000


Under the cost recovery method, record equal amounts of revenue and cost until costrecovered, and then record gross profit. In 20x4, recorded revenue and cost of P1,200,000,so record remaining cost of P600,000 and all gross profit of P1,200,000 in 20x5.

47. a 20x4 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 2,160,000

Total estimated costs P 9,840,000 P 10,800,000

Estimated 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 8,700,000due to customers

P780,000

Note: If there is an anticipated loss, the Construction-in-Progress for both methods willexactly be the same in the year the loss was incurred.

48. d

Percentage of Completion: Project 6 Project 7 Project 8

Contract price………………………….. P500,000 P700,000 P250,000

Cost incurred each year………………. P375,000 P100,000 P100,000

Add: Cost incurred in prior year……… _________ ________ ________

Costs incurred to date………………… P375,000 P100,000 P100,000

Add: Estimated costs to compute……. ________ 400,000 100,000

Total estimated costs…………………. P375,000 P500,000 P200,000



Estimated gross profit………………… P125,000 P200,000 P 50,000

Multiply by: percentage of completion. 100% 20% 50%

Recognized gross profit to date……… P125,000 P 40,000 P 25,000

Less: 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 constructioncontract…………………………….. 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. 375,000Pr. 125,000

Pr. 7 – Cl. 100,000Pr. 40,000

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

500,000 Pr. 6 Pr. 6 - Cl. 375,000Pr. 125,000

Pr. 7 – CI 100,000Pr. 8 – CI 100,000

700,00012/31 200,000

500,000 Pr. 6

500,000(d)

765,000 500,000

12/31 265,000 (d)

49. aInput Measures: Efforts-Expended Method - using timbers laid

Year 2 Year 3

Timers laid Each Year 300 500

Add: Timbers laid in Prior Years 150 450Timbers laid to date 450 950

Add: Additional support timbers to be laid 520 -0-

Total Estimated Timbers 970 950

Percentage-of-Completion 45/97 100%

x: CONTRACT PRICE P 800,000 P 800,000

Recognized Revenue to Date P 371,134 P 800,000

Recognized Revenue in Prior Years 371,134

Recognized Revenue in Current Yr. P 428,866

Output Measures – Number of trail feet

Year 2 Year 3

Trail feet Each Year 7,500 8,000Add: Trail fees in Prior Years 3,000 10,500

Trail feet to date 10,500 18,500

Add: Additional trail feet to be constructed 8,200 ___-0-

Total Estimated Trail feet 18,700 18,500

Percentage-of-Completion 105/187 100%

x: CONTRACT PRICE P 800,000 P 800,000

Recognized Revenue to Date P 449,198 P 800,000



Recognized Revenue in Prior Years 449,198

Recognized Revenue in Current Yr. P 350,802

50. b

2006 2007 2008

Contract price………………………….. P5,000,000 P5,000,000 P5,000,000

Cost incurred each year………………. P2,050,000Add: 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)

51. d – refer to No. 50

52. cContract Price……………………………………………… P60,000,000Less: 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 9,000,000Multiplied by: % of completion…………………………. 30%Recognized gross profit to date……………………….. P 2,700,000Less: RGP in prior years…………………………………… _________0Recognized gross profit in current year ……………… P 2,700,000

Construction-in-progress Account:Costs incurred to date………………………………….. P 26,000,000GP in the current year…………………………………… 2,700,000

P 28,700,000Less: Progress billings…………………………………….. 5,000,000Due from customer (net)………………………………. P 23,700,000

53. 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

54. cContract Price P120,000,000 x: Mobilization Fee 10%Collection in 20x4 P 12,000,000Note: Billings for 20x4 will be collected in January 20x5.

55. aMobilization Fee: 5% x P10M P 5.0 M



Collection on Billings:Contract price P 100 M

x: Progress billings, net of 10% and 8% (50% - 10% - 8%) 32%Progress billings P 32 M

x: Collections net of contract retention of 10% 90% 28.8 MCollections in 20x4 P 33.8 M

56. 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).

Quiz- VIII

1. P100,000 = [P900,000 ÷ (P900,000 + P1,800,000)] × P3,000,000 = P1,000,000P1,000,000 – P900,000 = P100,000.

2. P150,000


Costs incurred to date 1,350,000

Add: Estimated cost to complete _2,700,000

Total estimated costs 4,050,000

Estimated Gross Profit (loss) 450,000

Multiply by: % of completion 1,350/4,050

Recognized Gross Profit (Loss) to date 150,000

Less: Gross Profit (Loss) in prior year ____-0-

Recognized Gross Profit (Loss) in current year 150,000

3. P150,000

20x5 20x6

Contract price 3,000,000 3,000,000

Costs incurred to date 1,800,000

Add: Estimated cost to complete _600,000

Total estimated costs 2,250,000 2,400,000

Estimated Gross Profit (loss) 750,000 600,000

Multiplied by: % of completion 1,800/2,400

Recognized Gross Profit (Loss) to date 300,000 450,000

Less: Gross Profit (Loss) in prior year _300,000


4. P80,000

20x5


Costs incurred to date 240,000

Add: Estimated cost to complete _960,000



Multiplied by: % of completion 240/1,200


Less: Gross Profit (Loss) in prior year ______0




5. P20,000

20x5 20x6

Contract price 1,400,000 1,400,000

Costs incurred each year 400,000 400,000

Add: Cost incurred in prior years _____-0- 400,000

Costs incurred to date 400,000 800,000

Add: Estimated cost to complete _400,000 200,000Total estimated costs 800,000 1,000,000


Multiplied by: % of completion 400/800 800/1,000


Less: Gross Profit (Loss) in prior year ______0 300.000

Recognized Gross Profit (Loss) in current year 300,000 20,000

6. P-0- , Under the cost recovery method, record equal amounts of revenue and cost until costrecovered, and then record gross profit

7.P240,000 Profit

20x5Contract price 4,000,000

Costs incurred each year 960,000

Add: Cost incurred in prior years _______0


Add: Estimated cost to complete



Multiplied by: % of completion 960/3,200


Less: Gross Profit (Loss) in prior year _______0


8. P102,000

20x5

Contract price 850,000


Add: Cost incurred in prior years _______0


Add: Estimated cost to complete 357,000

Total estimated costs 595,000


Multiplied by: % of completion 238/595


Less: Gross Profit (Loss) in prior year _______0Recognized Gross Profit (Loss) in current year 102,000



9. P990,000

20x5 20x6

Contract price 3,000,000 3,000,000


Add: Cost incurred in prior years 450,000

Costs incurred to date* 450,000 1,440,000

Add: Estimated cost to completeTotal estimated costs 2,250,000 2,400,000


Multiplied by: % of completion ____20% _____60%


Less: Gross Profit (Loss) in prior year ______0 150.000

Recognized Gross Profit (Loss) in current year 150,000 210,000* total estimated costs x % of completion

10. P50,000

20x5


Costs incurred each year 465,000Add: Cost incurred in prior years _______0


Add: Estimated cost to complete 1,085,000


Estimated Gross Profit (loss) ( 50,000)

Multiplied by: % of completion 100%

Recognized Gross Profit (Loss) to date ( 50,000)

Less: Gross Profit (Loss) in prior year _______0

Recognized Gross Profit (Loss) in current year ( 50,000)

11. P625,000

20x5 20x6Contract price 3,500,000 3,500,000

Costs incurred each year 1,350,000 1,525,000

Add: Cost incurred in prior years -0- 1,350,000

Costs incurred to date 1,350,000 2,875,000

Add: Estimated cost to complete 1,350,000 _______0

Total estimated costs 2,700,000 2,875,000


Multiplied by: % of completion - ___100%


Less: Gross Profit (Loss) in prior year -0- _______0

Recognized Gross Profit (Loss) in current year -0- 625,000



12. P550Costs Incurred………………………………………………………………………. 400

Contract price………………………………………. P2,750

Cost incurred each year………………………….. P 400

Add: Cost incurred in prior year…………………. ___-0-

Costs incurred to date…………………………….. P 400

Add: Estimated costs to complete……………… _1,600Total estimated costs………………………………. P2,000

Estimated gross profit (loss)………….……………. P 750

Multiplied by: percentage of completion……….. 400/2,000 150

Construction In Progress account – inventory account…………………… 550

13. P1,200,000The term “completed” should be “cost recovery”

Costs Incurred 700,000

Contract price………………………………………. P2,000,000


Add: Cost incurred in prior year…………………. ______-0-

Costs incurred to date…………………………….. P 700,000

Add: Estimated costs to complete……………… __800,000Total estimated costs………………………………. P1,500,000

Estimated gross profit (loss)………….……………. P 500,000

Multiplied by: percentage of completion……….. ________0 _______0

Construction In Progress account – inventory account 700,000

20x5

Costs incurred 600,000

Contract price………………………………………. P2,000,000


Add: Cost incurred in prior year…………………. _700,000

Costs incurred to date…………………………….. P1,300,000)

Add: Estimated costs to complete……………… __800,000

Total estimated costs………………………………. P(2,100,000)

Estimated gross profit (loss)………….……………. P (100,000)

Multiplied by: percentage of completion……….. ________0 _(100,000)

Construction In Progress account – inventory account 1,200,000

14. P32,000 = P47,000 – P15,000



15. P782,000

20x5

Costs Incurred 238,000

Contract price………………………………………. P850,000

Cost incurred each year………………………….. P238,000

Add: Cost incurred in prior year…………………. ______-0-Costs incurred to date…………………………….. P238,000

Add: Estimated costs to complete……………… _357,000


Estimated gross profit (loss)………….……………. P255,000

Multiplied by: percentage of completion……….. _238/595 102,000


20x6

Costs incurred 319,600

Contract price………………………………………. P850,000

Cost incurred each year………………………….. P319,600

Add: Cost incurred in prior year…………………. _238,000

Costs incurred to date…………………………….. P557,600

Add: Estimated costs to complete……………… _139,400


Estimated gross profit (loss)………….……………. P153,000

Multiplied by: percentage of completion……….. _557.6/697 _122,400


Less: Progress billings (P260,000 + P210,000) 470,000

Construction In Progress account (net) – Due fromcustomers 312,000

16. P312,00017. same with no.16 – P312,00018. (P9,000,000 – P8,250,000) (P3,795,000 ÷ P8,250,000) = P345,000.19.P3,795,000 + P345,000 = P4,140,000.

20. P2,750,000P1,650,000

————— × P5,000,000 = P2,750,000P3,000,000

21. Accounts Receivable ............................................................................... 1,650,000Billings on Construction in Process ........................................... 1,650,000

22. Construction Expenses ............................................................................. 1,650,000Construction in Process ............................................................................ 1,100,000

Revenue from Long-Term Contracts ....................................... 2,750,000

23. P875,000Revenue P5,000,000Costs 3,025,000Total gross profit 1,975,000Recognized in 20x5 (1,100,000)Recognized in 20x6 P 875,000

OrTotal revenue P5,000,000Recognized in 20x5 (2,750,000)



Recognized in 20x6 2,250,000Costs in 20x6 (1,375,000)Gross profit in 20x6 P 875,000

Percentage-of-Completion Completed-ContractGross Profit Gross Profit

24. 20x5 P750,000a 20x5 — 25. 20x6 P210,000b 20x6 — 26. 20x7 P440,000c 20x7 P1,400,000d

aP1,500,000 ————— × P2,000,000 = P750,000P4,000,000

bP2,640,000 ————— × P1,600,000 = P960,000

P4,400,000

Less 20x5 gross profit (750,000)20x6 gross profit P210,000

cTotal revenue P6,000,000Total costs 4,600,000Total gross profit 1,400,000Recognized to date (960,000)20x7 gross profit P 440,000

dTotal revenue P6,000,000Total costs 4,600,000Total gross profit P1,400,000

27. P312,500Revenue = [P250,000/(P250,000 + P750,000)]

P1,250,000= P312,500

Gross profit = P312,500 P250,000 = P62,500Construction in progress = P250,000 + P62,500 = P312,500

28. P125,000(2) Current Assets

InventoriesConstruction in progress* P1,000,000

Less: Partial billings** (875,000)

Costs and recognized profit notyet billed P 125,000

*Revenue to date = (P250,000 +P600,000)/(P250,000 + P600,000 +

P212,500) 1,250,000 = P1,000,000Construction in progress = P250,000 +P600,000 + P150,000 = P1,000,000

**Partial billings = P375,000 + P500,000 =P875,000



29. P60,00

Revenue to date P1,250,000Revenue from previous periods _1,000,000Revenue for 20x7 P 250,000Costs incurred in 20x7 _ 190,000

Gross profit for 20x7 P 60,000

THEORIES

1. False 6. False 11. False 16. True 21. True 26. True 31. False

2. True 7. False 12. True 17. False 22. False 27. True 32. False

3. True 8. False 13. False 18. True 23. False 28. False 33. True

4. False 9. True 14. True 19. False 24. False 29. False 34. False

5. False 10, False 15, False 20. True 25. False 30. True 35. True

36. False

37. True 38. True

39. False

40. False

41. b 46. a 51. c 56. d 61. d 66. c

42. c 47. d 52. b 57. b 62. b 67. b

43. b 48. c 53. c 58. c 63. a 68. a

44. c 49. c 54. b 59. c 64. c 69. d

45. b 50. a 55. a 60. c 65. d 70. C

Chapter 08 dayag

Documents

Transcript of Chapter 08 dayag