PROBLEM 13

In 2011, NEON Construction Co. was constructed to do the private road network of Subdivision Corp. for P200M.
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;
c. and Progress billings on construction are payable within seven days from acceptance.
NEON estimated its gross margin on the project at 25%. It used the percentage of completion method of accounting.
By the end of the year, NEON presented progress billings corresponding to 50% completion. Subdivision Corp.
accepted all the bills presented except the last one for 10% which was accepted on January 10. With the exception
of the second to the last billing of 8% accepted in 2011 which was due on January 3 2012. All accepted billings
were settled.
In 2011, NEON realized gross profit from the Subdivision project the sum of

PROBLEM 14
On September 14, 2011, CLONE Inc. won the bid for the construction of a 1,000 room hotel for Valerie Inc. on
the reclamation area for P2.4 billion. On the terms of payment, parties agreed to the following:
a. One percent mobilization fee (dductible 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 2011, the company had presented only one progress billing for 10% completion which Valerie, Inc.
evaluated and accepted on 28 December for payment in January. The company used the percentage of completion
method of accounting.
CLONE's Inc. received a fee of:

PROBLEM 15
BRIAN Constructors, Inc. has the following data for large jobs in its Jobs in Progress account (000, omitted):

Actual Estimated Contract Percent

Project no. Cost Total Cost Price Complete
101 17,512 345,600 384,000 5
102 22,914 29,750 35,000 75
103 107,730 122,500 175,000 80
104 4,560 79,520 99,400 55
105 89,000 244,620 302,000 35
241,716 821,990 995,400
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 jobs is:

PROBLEM 16
BARRY Construction,Inc. uses the percentage of completion method in recognizing income. In 2011, Barry
Construction, Inc. was engaged by ROBIN INC. on a fixed price contract to build a shopping mall.
On January 1, 2013, a fire damaged the accounting records of BARRY Construction, Inc. The president of the
company has contracted you to reconstruct the contract information. The following data were taken from the
salvaged files:
December 31
2011 2012
 Architect's estimated cost of completion 15,000,000 16,000,000
Costs incurred 6,000,000
Percentage of completion 60%
Income recognized to date 1,000,000 2,400,000
Compute for the percentage completed in 2011 on ROBIN shopping mall.

PROBLEM 17
MIKE Construction Company was awarded a contract to construct a new sewage system for Maynilad for the
price of P3,250,000. The original estimate of the cost to complete the project was P3M. The contract provides for
periodic progress 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 for the system was as follows:
Cost to incurred Estimated cost
Date to date to complete
Dec. 31, 2011 P1,075,000 P1,612,500
Dec. 31, 2012 2,625,000 750,000
Aug. 15,2013 3,425,000

The construction was inspected on August 15, 2011, January 15,2012 and Oct 1, 2012, and progress billings equal
to 25% of the contract price were made on each of these dates. The system was completed, and final inspection
and acceptance took place on August 21,2013.
How much is the contruction in progress, net of billing in the 2012 statement of financial positiont?

PROBLEM 18
CARINA Construction Company which uses the percentage of completion method presented the following data
relating to the 4 projects:
Project A Project B Project C Project D
Contract price 5,800,000 6,800,000 3,400,000 4,000,000
Cost incurred, 2010 3,360,000 2,880,000 640,000 -
Estimated cost to
complete, 2010 2,240,000 3,520,000 1,920,000 -
Cost incurred, 2011 1,920,000 1,360,000 1,726,000 1,120,000
Estimated cost to
complete, 2011 - 2,720,000 234,000 2,080,000
Operating expenses for 2010 and 2011 were P240,000 for each year.
How much is the net income for the two year ended December 31:

PROBLEM 19
Cedric Construction Company began operation on January 2, 2011. During the year, the company entered into a
contract with Trixie Company to construct a manufacturing facility. At that time, Cedric Company estimated that it
would take five years to complete the facility to a total cost of P3,600,000. The total contract price for
construction of the facility is P5,000,000. During the year, the company incurred P880,000 in construction costs
related to the construction project. The estimated cost to complete the contract is P3,120,000. Trixie was billed
and paid 30% of the contract price subject to a 10% retention.
Using the percentage completion method, how much is the excess of the Construction in Progress over Contract
Billings or Contract Billings over Construction in Progress?
a. P400,000, current asset c. P400,000 , current liability
b. P250,000, current liability d. P250,000, current asset

PROBLEM 20
MARVIC Construction, Inc. entered into a construction contract in 2011 that called for a contract price of P19.2M.
At the beginning of 2012, a change order increased the initial contract price by P960,000. The company uses the
percentage of completion method for completing the project. The following data is available:
 2011 2012
Cost incurred to date 9,840,000 17,280,000
Estimated costs to complete 9,840,000 4,320,000
What gross profit (loss) should MARVIC Corporation recognized in 2011 and 2012?

PROBLEM 21
WE CONSTRUCT Company has entered into a very profitable fixed price contract for constructing a high rise
building over a period of three years. It incurs the following cost relating to the contract during the first year:
Cost of material 5.0 M
Site labor cost 4.0 M
Agreed administrative costs as per contract to be
reimbursed by the customer 2.0 M
Depreciation of the plant used for the construction 1.0 M
Marketing costs for selling apartments, when they
are ready 2.0 M
Total estimated cost of the project is P36.0 M
Required: Percentage of completion

ACCOUNTING FOR CHANGE ORDERS

PROBLEM 22
On January 2, 1011, JERICHO BUILDERS entered into a contract to construct a building for P30M/ During the
construction period, many change orders were made to the original contract. All of the changes were accepted
by both the customer and the contractor. The following schedule summarizes the change orders in 2011:
Cost Estd.
incurred Cost to Contract
in 2010 complete Price
Basic contract 6.0M 21.0M 30.0M
Change order # 1 37,500 37,500 93,750
Change order # 2 37,500
Change order # 3 225,000 225,000 450,000
Change order # 4 93,750 75,000
The company uses the percentage of completion method.
Required: Gross profit to be recognized on December 31, 2011 (rounded off)

PROBLEM 23
Jeremy Builders began operation on January 2, 2012. During the year, the company entered into a contract with
Animae Company to construct a manufacturing facility. At that time, Jeremy estimated that it would take five
years to complete the facility at a total cost of P3.6M. The total contract price for the construction of the facility is
P5M. During the year, the company incurred P880,000 in construction costs related to the construction project.
The estimated cost to complete the contract is P3,120,000. Animae Company was billed and paid 30% of the
contract price subject to a 10% retention. The company is using the percentage of completion method.
Required: Excess of construction in progress over contract billings or contract billings over construction in
progress

PROBLEM 24
Johnson Company uses the percentage of completion method of accounting. The company started work on two
job sites during 2011. Data relating to the two jobs are as follows:
Contract Actual cost Estd cost to
 Price 12/31/2011 complete
Contract 1 1,200,000 300,000 300,000
Contract 2 900,000 175,000 325,000
In 2012, Contract 3 was started for a contract price of P1,800,000. As of December 31, 2012, the following data
are given:
Actual cost Estd cost to
2011-2012 complete
Contract 1 560,000 140,000
Contract 2 360,000 240,000
Contract 3 360,000 640,000
Required: Balance of construction in progress account on December 31, 2012

PROBLEM 25
On January 1, 2010, Strict Builders won a bidding to build a coliseum. The project was to be built at a total cost
of P11M and was scheduled for completion by September 1, 2012. One clause of the contract stated that Strict
was to deduct P30,000 from the P13,200,000 bid price for each week that completion was delayed. Completion
was delayed six weeks.
Data for the three year construction period follows:
2010 2011 2012
Cost incurred each year 3,564,000 4,136,000 3,300,000
Estimated cost to complete 7,236,000 3,300,000 -
Contract billings each year 2,400,000 3,800,000 ?
Cash collections each year 2,000,000 3,600,000 7,420,000
Operating expenses 200,000 180,000 140,000
Required: 1. Net income for the year 2011 using the percentage of completion method
2. Balance of construction in progress net of billings at December 31, 2011 under the percentage
of completion method
3. Balance of construction in progress net of billings at December 31, 2011 under the zero profit
method

V. R. ESPIRITU
PSBA - MANILA
INTEGRATED REVIEW

LONG TERM CONSTRUCTION

PROBLEM 26
On January 1, 2017, David Inc. entered into a contract to build a school building for St. Francis for
a total contract price of P10M. St. Francis will make annual payments to David Inc., but the amount
of these payments cannot exceed the direct costs incurred by David Inc.
The construction contract provided St. Francis with a final inspection right to ensure compliance with
the contract terms prior to accepting the completed project.
It had been the accounting policy of David Inc. to use the percentage of completion method to
compute construction revenue and gross profit.
On January 1, 2019, David Inc. implemented an accounting change from percentage of completion
method to zero profit or cost recovery method.
The following data were provided by David Inc. for the years ended December 31, 2017 to 2019:
2017 2018 2019
Cost incurred each year 2,900,000 5,200,000 1,200,000
Estimated cost to complete at year-end 6,300,000 800,000
Progress billing each year 800,000 4,000,000 5,200,000
 Progress payment received each year 550,000 4,200,000 5,250,000
Corporate income tax 30% 30% 30%

The cost incurred for each year are inclusive of the following actual marketing expenses and
general administrative costs which are not reimbursable under the construction contracts:

2017 2018 2019

Marketing expenses 140,000 400,000 240,000
General administrative costs 60,000 300,000 160,000

Required: 1. Net income for the year 2017

2. Net income for the year 2018
3. Construction in progress balance as of December 31, 2017
4. Construction in progress balance net of billings as of December 31, 2018

PROBLEM 27
Eleanor Construction Company has two construction projects which commenced in 2019. Data
for the two projects are as follows:
Project 1 Project 2
Contract price 840,000 300,000
Cost incurred during 2019 240,000 280,000
Estimated cost to complete 120,000 70,000
Progress billings during 2019 250,000 290,000
Collections during 2019 240,000 280,000
Expenses 20,000 10,000
Required: 1. Net income(loss) using the percentage of completion method in 2019
2. Net income(loss) using the zero profit method in 2019
on Corp. for P200M.
among other things

ys after the signing of

the completed project;

method of accounting.
Subdivision Corp.
10. With the exception
l accepted billings

el for Valerie Inc. on

he signing of the

pleted project; and

which Valerie, Inc.

centage of completion

unt (000, omitted):

are done as follows:

yment which is also

In 2011, Barry

president of the
taken from the
or Maynilad for the
contract provides for
final inspection and

progress billings equal

and final inspection

the following data

pany entered into a

ny estimated that it

construction costs
. Trixie was billed

gress over Contract

act price of P19.2M.

e company uses the
cting a high rise
g the first year:

P30M/ During the

es were accepted
ers in 2011:

into a contract with

would take five
tion of the facility is
nstruction project.
paid 30% of the

onstruction in

started work on two

, the following data

built at a total cost

ct stated that Strict
ayed. Completion

the percentage

the zero profit

R. ESPIRITU

t. Francis for
but the amount

ompliance with

of completion

17 to 2019: