PRACTICAL ACCOUNTING 2

LONG-TERM CONSTRUCTION CONTRACTS

Problem 1
WAYA

2009 2010 2011 Total

Gross Profit 10,000 35,000 (5,000) 40,000
Cost 90,000 165,000 (a) 205,000 460,000
Revenue 100,000 200,000 200,000 500,000

Revenue to date 100,000 300,000 500,000

% of completion
CIP/TCP 20% (e) 60% (b) 100%

GP to date 10,000 45,000 40,000

Total Est GP
GPTD/% of comp 50,000 75,000 (c)

TEC (CITD / % of C) 450,000 425,000

less CITD 90,000 255,000
Est. Cost to complete 360,000 170,000 (d)

Problem 2
GOLDEN
Requirement #1
2012
Construction in Progress .................... 750,000
Materials, Cash, etc. ..................... 750,000

Accounts Receivable ......................... 570,000

Progress Billings on Construction Contracts 570,000

Cash ........................................ 450,000

Accounts Receivable ....................... 450,000

2013
Construction in Progress .................... 2,700,000
Materials, Cash, etc. ..................... 2,700,000

Accounts Receivable ......................... 3,600,000

Progress Billings on Construction Contracts 3,600,000

Cash ........................................ 3,300,000

Accounts Receivable ....................... 3,300,000

2014
Construction in Progress .................... 630,000
Materials, Cash, etc. ..................... 630,000

Accounts Receivable ......................... 930,000

Progress Billings on Construction Contracts 930,000

P2-01A
 Cash ........................................ 1,350,000
Accounts Receivable ....................... 1,350,000

Progress Billings on Construction Contracts . 5,100,000

Revenue from Long-Term Construction
Contracts ................................. 5,100,000

Cost of Long-Term Construction Contracts .... 4,080,000

Construction in Progress .................. 4,080,000

Requirement #2
2012
Construction in Progress .................... 750,000
Materials, Cash, etc. ..................... 750,000

Accounts Receivable ......................... 570,000

Progress Billings on Construction Contracts 570,000

Cash ........................................ 450,000

Accounts Receivable ....................... 450,000

Cost of Long-Term Construction Contracts .... 750,000

Construction in Progress .................... 270,000
Revenue from Long-Term Construction
Contracts ................................. 1,020,000

2013
Construction in Progress .................... 2,700,000
Materials, Cash, etc. ..................... 2,700,000

Accounts Receivable ......................... 3,600,000

Progress Billings on Construction Contracts 3,600,000

Cash ........................................ 3,300,000

Accounts Receivable ....................... 3,300,000

Cost of Long-Term Construction Contracts .... 2,700,000

Construction in Progress .................... 360,000
Revenue from Long-Term Construction
Contracts ................................. 3,060,000

2014
Construction in Progress .................... 630,000
Materials, Cash, etc. ..................... 630,000

Accounts Receivable ......................... 930,000

Progress Billings on Construction Contracts 930,000

Cash ........................................ 1,350,000

Accounts Receivable ....................... 1,350,000

Cost of Long-Term Construction Contracts .... 630,000

Construction in Progress .................... 390,000
Revenue from Long-Term Construction
Contracts ................................. 1,020,000

Progress Billings on Construction Contracts . 5,100,000

Construction in Progress .................. 5,100,000

P2-01A
Problem 3
SOLIDROCK
2012
Construction in Progress .................... 9,000,000
Materials, Cash, etc. ..................... 9,000,000

Accounts Receivable ......................... 11,000,000

Progress Billings on Construction Contracts 11,000,000

Cash ........................................ 7,500,000

Accounts Receivable ....................... 7,500,000

Cost of Long-Term Construction Contracts .... 9,000,000

Construction in Progress
(P9,000,000 / P19,000,000)  P2,000,000 ... 947,368
Revenue from Long-Term Construction
Contracts ................................. 9,947,368

2013
Construction in Progress .................... 9,500,000
Materials, Cash, etc. ..................... 9,500,000

Accounts Receivable ......................... 8,000,000

Progress Billings on Construction Contracts 8,000,000

Cash ........................................ 9,000,000

Accounts Receivable ....................... 9,000,000

Cost of Long-Term Construction Contracts .... 9,500,000

Construction in Progress (P21,000,000 -
P18,500,000 total costs) - P947,368 ........ 1,552,632
Revenue from Long-Term Construction
Contracts ................................. 11,052,632

2014
Accounts Receivable ......................... 2,000,000
Progress Billings on Construction Contracts 2,000,000

Cash ........................................ 4,500,000

Accounts Receivable ....................... 4,500,000

Progress Billings on Construction Contracts . 21,000,000

Construction in Progress .................. 21,000,000
Problem 4
SEALAND
(1) Using the completed-contract method, no gross profit is recognized on the contract until the bridge is
completed. Thus, no entry is needed.

(2)
Cost of Long-Term Construction Contracts ... 1,800,000
Construction in Progress ................... 450,000 *
Revenue from Long-Term Construction
Contracts.................................. 2,250,000
P1,800,000 / 30% = P6,000,000
P7,500,000 - P6,000,000 = P1,500,000

P2-01A
 P1,500,000  30% = P450,000

Problem 5
MANDALUYONG
(1)
Progress billings on construction contract ............ P562,000
Less accounts receivable .............................. 150,500
Cash collected in 2009 ................................ P411,500

(2)
Gross profit from construction contract + Construction in progress = Revenue for
2009
P301,000 + P602,000 = P903,000
P903,000/P7,525,000 = 12% Percentage completed in 2009
P301,000/.12 = P2,508,333 Estimated income on construction contract
Problem 6
JAGUAR
2012 2013 2014
Contract price ................... P250,000 P250,000 P250,000
Current year costs ............... 110,000 115,000 15,000
Costs to date .................... 110,000 225,000 240,000
Estimated cost to complete ....... 100,000 20,000 0
Estimated total cost ............. 210,000 245,000 240,000
Estimated total gross profit ..... 40,000 5,000 10,000

Percent complete ................. 52% 92% 100%

Revenue to date .................. P130,000 P230,000 P250,000

To Date Previous Current

at Dec. 31 Years Year
2012: Revenue ............ P130,000 P130,000
Costs ............ 110,000 110,000
Gross profit ............ P 20,000 P 20,000

2013: Revenue ............ P230,000 P130,000 P100,000

Costs ............ 225,000 110,000 115,000
Gross profit ............ P 5,000 P 20,000 P(15,000)

2014: Revenue ............ P250,000 P230,000 P 20,000

Costs ............ 240,000 225,000 15,000
Gross profit ............ P 10,000 P 5,000 P 5,000

2012 2013 2014

1. Revenue recognized during

the year .................... P130,000 P100,000 P20,000
2. Gross profit recognized during
the year .................... 20,000 (15,000) 5,000
3. Balance in the construction in
progress account at Dec. 31 . 130,000 230,000 0
4. Balance in the progress
billings account at Dec. 31 . 125,000 250,000 0

P2-01A
 Problem 7
BETONVAL
2012 2013 2014
Contract price P500,000 P500,000 P500,000
Current year costs 210,000 220,000 65,000
Costs to date 210,000 430,000 495,000
Estimated cost to complete 270,000 80,000 0
Estimated total cost 480,000 510,000 495,000
Estimated total gross profit 20,000 (10,000) 5,000

Percent complete 43.75% 84.13% 100%

Revenue to date P157,500 P232,500 P250,000

To Date Previous Current

at Dec. 31 Years Year
2012: Revenue ............ P218,500 P157,500
Costs ............ 210,000 150,000
Gross profit ............ P 8,750 P 7,500

2013: Revenue ............ P420,000 P218,500 P 201,500

Costs ............ 430,000 210,000 220,500
Gross profit ............ P(10,000) P 8,750 P(18,750)

2014: Revenue ............ P500,000 P420,000 P 80,000

Costs ............ 495,000 430,000 65,000
Gross profit ............ P5,000 P(10,000) P 15,000

2012 2013 2014

1. Construction costs (expense)
recognized during the year P210,000 P220,000 P65,000

2. Gross profit recognized during

the year 8,750 (10,000) 15,000

3. Balance in the construction in

progress account at Dec. 31
(after closing entries) 218,750 420,000 0

4. Balance in accounts receivable

at Dec. 31 (after closing
entries) 20,000 40,000 0

MULTIPLE CHOICE
1. D 6. D 11. A 16. C 21. A
2. C 7. C 12. D 17. A 22. B
3. D 8. D 13. C 18. D 23. C
4. B 9. C 14. C 19. B 24. C
5. C 10. B 15. B 20. B 25. A

P2-01A