Long Term contract

1) In accounting for a long-term construction contract using the

percentage-of-completion method, the progress billings on
contracts account is a
a. Contra current asset account if construction in process exceed
billing.
b. Reported as current liabilities if construction in process is les than
billing.
c. Note that both answers are correct
2) Under the percentage-of-completion method, how should earned
but unbilled revenues on a long-term contract be disclosed on the
statement of financial position?
a. as construction in process in the noncurrent asset section
b. as a receivable in the noncurrent asset section
c. in a note to the financial statements until the customer is formally
billed for the portion of work completed
d. as construction in process in the current asset section
3) Under the completed-contract method,
a. revenue, costs, and gross profit are recognized during the contract.
b. revenue and costs are recognized during the contract, but gross
profit recognition is deferred until the contract is completed.
c. costs are recognized during the contract, but revenue and gross
profit are not.
d. revenue, costs and gross profit are not recognized until the
contract is finished.
4) Cost estimates on a long-term contract may indicate that a loss will result on
completion of the entire contract. In this case, the entire expected loss should
be
a. recognized in the current period under the percentage-of- completion method,
but the completed-contract method should defer recognition of the loss to the
time when the contract is completed.
b. recognized in the current period under the completed-contract method, but
the percentage-of-completion method should defer the loss until the contract
is completed.
c. deferred and recognized when the contract is completed, regardless of
whether the percentage-of-completion or completed-contract method is used.
d. recognized in the current period, regardless of whether the percentage-of-
completion or completed-contract method is used.
5) The completed contract method for accounting for long-term
construction projects requires that
a. costs are accumulated and revenue is recognized in proportion to
cash collected.
b. gross profit is calculated each period, but deferred until the end of
the contract.
c. revenue is calculated each period, but deferred until the end of the
contract.
d. no revenue is recognized until the project is completed.
6) Losses on unprofitable long-term construction projects
a. are generally deferred until the contract is complete.
b. are only recognized immediately under the completed-contract
method.
c. are only recognized immediately under the percentage-of-
completion method.
d. are recognized immediately under both the completed-contract
method and the percentage- of-completion method.
8) Losses in a current period on a profitable contract
a. are generally deferred until the contract is complete.
b. are only recognized immediately under the completed-contract
method.
c. are only recognized immediately under the percentage-of-
completion method.
d. are recognized immediately under both the completed-contract
method and the percentage- of-completion method.
8) Which of the following statements regarding the completed
contract method is NOT true?
a. The company makes different entries to recognize revenue than
under the percentage-of-completion method.
b. Losses on an unprofitable contract are immediately recorded.
c. The company makes the same annual entries to record costs of
construction, progress billings, and collections from customers as
those under the percentage-of-completion method.
d. The company makes the same entries to recognize revenue as
those under the percentage-of-completion method.
9) When should an anticipated loss on a long- term contract be
recognized under the percentage-of-completion method and the
completed-contract method, respectively?
• Percentage-of-completion Completed-contract
Immediately Immediately
10) Bruner Contractors, Inc. has consistently used the percentage-of-
completion method of recognizing income. In 2019, Bruner started work
on a $35,000,000 construction contract that was completed in 2020. The
following information was taken from Bruner’s 2019 accounting records:
Progress billings $11,000,000
Costs incurred 10,500,000
Collections 7,000,000
Estimated costs to complete 21,000,000
What amount of gross profit should Bruner have recognized in 2019 on this contract?
a. $3,500,000
b. $2,333,334
c. $1,750,000
d. $1,166,667
11) Green Construction Co. has consistently recognized revenue over time according to
percentage-of-completion for the contract. During 2019, Green entered into a fixed-price
contract to construct an office building for $12,000,000. Information relating to the contract is
as follows:
At December 31 2019 2020
Percentage of completion 15% 45%
Estimated total cost at completion $9,000,000 $9,600,000
Gross profit recognized (cumulative) 600,000 1,440,000
Contract costs incurred during 2020 were
C) $3,150,000
D) $4320,000
A) $2,880,000
B) $2,970,000
• Feedback: ($9,600,000 × 45%) – ($9,000,000 × 15%) = $2,970,000
12) Sky Construction Corp. has consistently used the percentage-of- completion method.
In 2017, Sky started work on a $7,000,000 construction contract that was completed in
2018. The following information was taken from Sky’s 2017 accounting records:
Billings to date $2,200,000
Costs incurred 2,100,000
Collections to date 1,400,000
Estimated costs to complete 4,200,000
• What amount of gross profit should be recognized in 2017 on this contract?
a. $700,000
b. $466,667
c. $350,000
d. $233,333
Use the following information to answers the next 2 questions .

• During 2017, Indie Corp. started a construction job with a total

contract price of $700,000. Indie has consistently used the completed
contract method. The job was completed on December 15, 2017.
Additional data are as follows:
2017 2018

Actual costs incurred $270,000 $305,000

Estimated remaining costs 270,000 -

Billings to date 240,000 460,000

Collections to date 200,000 480,000

13) For 2017, what amount should Horn recognize as gross profit?
b) $80,000
c) $95,000
d) $125,000
a) $0

14) For 2018, what amount should Horn recognize as gross profit?
a) $0
b) $80,000
c) $95,000
d) $125,000
15) Country Corp. contracted to construct a building for $1,500,000.
Construction began in 2017 and was completed in 2018. Data relating to
the contract follow
2017 2018

Actual costs incurred $6000,000 $460,000

Estimated remaining costs 400,000 -

Country uses the percentage-of-completion method. For the calendar years

2017 and 2018, respectively, Country should report gross profit of
a) $270,000 and $170,000.
d) $0 and $440,000.
b) $900,000 and $600,000.
c) $300,000 and $140,000.
16) A project was correctly accounted for under the percentage-of-
completion method. At the end of the project, the Construction-in-
Process account includes total debits and credits of $3,500,000.
Assuming that total gross profit of $1,200,000 was recognized
throughout the contract, total construction costs were
a) $4,600,000.
b) $2,100,000
c) $3,500,000.
d) $2,300,000.
17) In 2017, Pop Construction Corp. began work on a contract for $3,700,000. Date
concerned 2017 follow:
Costs incurred during the year $1,800,000
Estimated costs to complete as of December 31 1,200,000
Billings during the year 1,650,000
Collections during the year 975,000
• Pop uses the percentage-of-completion method. For calendar 2017, Pop should report
gross profit of
a) $150,000.
c) $700,000.
d) $2,220,000.
b) $420,000.
18) In 2017, Hip-hop Inc. began a three year construction contract for
• $7,000,000. Hip-hop uses the percentage-of-completion method. The income to be
recognized each year is based on the proportion of costs incurred to total estimated
costs for completing the contract. The financial statement presentation relating to this
contract for calendar 2017 follow:
• Statement of Financial Position
Accounts receivable—construction contract billings $300,000
Construction in progress………………………………………………… 850,000
Less contract billings……………………………………………………… 640,000
Costs and recognized profit in excess of billings…… 210,000
• Income Statement
Income the contract recognized in 2017 $210,000
How much cash was collected in 2017 on this contract?
a) $50,000
b) $400,000
c) $600,000
b) $340,000
19) Rap Construction Corp. uses the percentage-of-completion method. In
2017, Rap began work on a contract for $1,650,000 which was
completed in 2018. Data on the costs are:
31/12/2017 31/12/2018

Costs incurred $585,000 $420,000

Estimated costs to complete 390,000 —

For the calendar years 2017 and 2018, Rap should recognize gross profit of
2017 and 2018 respectively
a) $0 $645,000
b) $405,000 $645,000
c) $387,000 $258,000
d) $405,000 $240,000
Use the following information for 2 questions
• Alternative Ltd. Began work in 2017 on a contract for $1,200,000.
Other details follow:
2017 2018
• Costs incurred during the year $200,000 $612,500
• Estimated costs to complete as of December 31 600,000 0

• Billings during the year 225,000 900,000

• Collections during the year 150,000 975,000

20) Assume that Alternative uses the percentage-of-completion

method of accounting. The portion of the total gross profit to be
recognized in 2017 is
a) $75,000.
c) $300,000.
d) $400,000.
b) $100,000.
21) Assume that Alternative uses the completed- contract method of
accounting. The portion of the total gross profit to be recognized in
2018 is
a) $150,000.
b) $1,200,000.
c) $225,000.
d) $387,500.
22) Bluegrass Builders Ltd. is using the completed-contract method for a
$2,000,000 contract that will take two years to complete. Data at
December 31, 2017, the end of the first year, are
• Costs incurred to date…………………………………………… $925,000
• Estimated costs to complete 1,100,000
• Billings to date……………………………………………………… 850,000
• Collections to date………………………………………………… 700,000
• The gross profit or loss that should be recognized for 2017 is
a) $50,000 gross profit.
b) $25,000 gross profit.
c) $25,000 loss.
d) $0.
23. Paulson Company uses the percentage-of-completion method to
account for long-term construction contracts. The following
information relates to a contract that was awarded at a price of
$700,000. The estimated costs were $500,000, and the contract
duration was three years.
Year 1 Year 2 Year 3

Cumulative cost to date $300,000 $390,000 $530,000

Costs to complete at year end 250,000 130,000 0

Progress billings 325,000 220,000 155,000

Collections on account 300,000 200,000 200,000

• Assuming that $65,000 was recognized as gross profit in Year 1, the
amount of gross profit Paulson recognized in Year 2 was
• a) $49,950
• b) $124,950
• c) $135,000
• d) $70,000
24) Rose Construction Company had the following year-end data on a long-
term construction contract started in 20X2 with a contract price of
$100,000.
• 20X2 20X3
Construction cost $30,000 $40,000
Estimated completion costs 50,000 0
Selling, general and administrative expenses 10,000 10,000

• What is the amount of revenue that will be reported in 20X3 using the
percentage-of-completion method?
a) $37,500
b) $40,000
c) $50,000
d) $62,500
Note
• 20X3, not the
•
Note that the question asks for the amount of revenue that •
•
amount of gross profit. Total revenue on the contract was $100,000. At the
• end of 20X2, construction was 37.5% complete ($30,000 ÷ [$30,000 +
• $50,000]), so the revenue recognized for 20X2 was $37,500. At the end of
• 20X3, we know construction was completed because the estimated cost
• complete as of the end of 20X3 was zero. Therefore, the $62,500 to
• contract—$100,000 minus the $37,500 remaining revenue on the
• recognized in 20X2—was recognized in 20X3
The following information is for the next three questions:
Carefree Construction recognizes construction revenue and expenses using
the percentage of completion method. During 20X0, Carefree began a single,
long-term project for a contract price of $1,500,000, which continued
through 20X3. Information on the project follows:
Costs incurred Estimated Costs to complete
20X0 $ 400,000 $800,000
20X1 600,000 700,000
20X2 1,350,000 200,000
20X3 1,550,000 0

25) For the year 20X0, what is the amount Carefree should recognize as gross
profit from this project?
a. $0
a. $75,000
b. $375,000
c. $100,000
26) For the year 20X1, what is the amount Carefree should recognize as gross profit
from this project?
a. $92,308 $7,692 loss
b. $33,000 loss
c. $0
d. $7,692 loss
•
For the year 20X2, what is the amount Carefree should recognize as gross profit
from thisproject?
a. $0
a. $92,308 loss
b. $50,000 loss
c. $142,308 loss
•
27) Which of the following statements regarding the completed
contract method is NOT true?
a. The company makes different entries to recognize revenue than
under the percentage-of-completion method.
Losses on an unprofitable contract are immediately recorded.
b. The company makes the same annual entries to record costs of
construction, progress billings, and collections from customers as
those under the percentage-of-completion method.
c. The company makes the same entries to recognize revenue as
those under the percentage-of-completion method.
28) Under the percentage-of-completion method, how should earned
but unbilled revenues on a long-term contract be disclosed on the
statement of financial position?
a. as construction in process in the noncurrent asset section.
b. as a receivable in the noncurrent asset section.
c. in a note to the financial statements until the customer is formally
billed for the portion of work completed.
d. as construction in process in the current asset section.
29) If the percentage-of-completion method is used, what is the basis
for determining the gross profit to be recognized in the second year
of a three-year contract?
a. Cumulative actual costs and estimated costs to complete
b. Cumulative actual costs incurred and progress billings
c. Incremental cost for the second year only
d. No gross profit would be recognized in year 2.
30) Mezzanine Contractors, Inc. has consistently used the percentage-
of-completion method of recognizing income. In 2019, Mezzanine
started work on a $36,000,000 construction contract that was
completed in 2020. The following information was taken from
Mezzanine’s 2019 accounting records:
Q 31
The next 2 questions refer to the following information.

• In 2019, Marble Inc. began a three year construction contract for

$7,000,000. Marble uses the percentage-of-completion method. The
income to be recognized each year is based on the proportion of costs
incurred to total estimated costs for completing the contract. The
following balances concerning the construction are extracted from
the company's records on December 31, 2019 follow:
Accounts receivable—construction contract billings $300,000
Construction in progress 850,000
Contract billings 640,000
Q32
Q33
• Gypsum Builders Ltd. is using the completed-contract method for a
$2,000,000 contract that will take two years to complete. Data at
December 31, 2019, the end of the first year, are
Costs incurred to date $ 955,000 Billings to date $850,000
Estimated costs to complete 1,100,000 Collections to date 700,000

• The gross profit or loss that should be recognized for 2019 is

a $25,000 profit b $25,600 profit c. $55,000 loss d. $0
. .
• Coffered ceiling Construction Company had the following year-end
data on a long-term construction contract started in 2019 with a
contract price of $110,000.
2019 2020
Construction cost $30,000 $40,000
Estimated completion costs 45,000 0

• What is the amount of revenue that will be reported in 2020 using

the percentage-of-completion method?
a $40,000 b $62,500 c. $44,000 d. $66,000
. .
Q34
• Granite Construction Company uses the completed-contract method
for long-term construction contracts. The information for a specific
contract as of January 1, 2019 is shown below.
Costs incurred to date $ 700,000
Contract price 1,900,000
Estimated remaining cost to complete 800,000
• Cost of $600,000 was incurred during 2019, and on December 31,
2019, the estimated remaining cost to complete was still $800,000.
The correct balance for the Construction in Progress account at
December 31, 2019, is
a. $1,300,000 b. $1,100,000 c. $600,000 d. $700,000
Q35
• Concrete Construction Company uses the percentage-of-completion method of
accounting. In 2017, Concrete began work on a contract it had received which
provided for a contract price of $15,000,000. Other details follow:
Costs incurred during the year $7,200,000
Estimated costs to complete as of December 31 4,800,000
Billings during the year 6,600,000
Collections during the year 3,900,000
What should be the gross profit recognized in 2017?

a. $600,000 c. $3,000,000
b. $7,800,000 d. $1,800,000
The following information relates to the next two questions.

• Alexandria Construction Company had a contract starting April 2016,

to construct a $9,000,000 building that is expected to be completed
in September 2018, at an estimated cost of $8,250,000. At the end of
2016, the costs to date were $3,795,000 and the estimated total costs
to complete had not changed. The progress billings during 2014 were
$1,800,000 and the cash collected during 2016 was $1,200,000.
36) For the year ended December 31, 2016, Alexandria would recognize
gross profit on the building of:
a. $316,250 c. $405,000
b. $345,000 d. $0
37) At December 31, 2016 Alexandria would report Construction in
Process in the amount of:
a. $345,000 c. $4,140,000
b. $3,795,000 d. $3,540,000
The Next Four Questions are based on the following information:
• The National Construction co. contracted to build a warehouse for Allied Traders on May
1, 2015 for $2 million to be completed and delivered on December 10, 2016. given:
2015 2016

Cost incurred to date 630,000 2,050,000

Estimated costs to complete the contract 1,170,000 -

38) The percentage of completion for 2015 is

a.53.85% b. 30.73% c. 35% d. none of the above

39) Revenue recognized in 2015 using the percentage of completion method is

a.$630,000 b. $700,000 c. $70,000 d. none of the above

40) Contract expense recognized in 2015 using the percentage of completion method is
a.$1,420,000 b. 1,370,000 c. $1,170,000 d. none of the above
41) The income statements for 2014 and 2015 will show, the following
using the completed contract method
a. $70,000 gain, $120,000 loss; respectively
b. $25,000 loss, $25,000 loss; respectively
c. $50,000 loss, $0 loss; respectively
d. d. $0 gross profit, $50,000 loss; respectively