ACTIVITY-CHAPTER 5

At contract inception, ABC Co. assesses its performance obligations in the

contract and concludes that it has a single performance obligation that is satisfied
over time. ABC Co. determines that the measure of progress that best depicts its
performance on the contract is “cost-to-cost” method.

1. How much is the revenue recognized in 20x1?

a. 4,200,000 b. 4,000,000 c. 2,800,000 d. 3,500,000
Ans. 4,000,000
Solution:
20x1
Total contract price 10,000,000
Costs incurred to date (a) 2,400,000
Estimated costs to complete 3,600,000
Estimated total contract costs (b) 6,000,000
Expected profit (loss) 4,000,000
Multiply by: % of completion (a) ÷ (b) 40%
Profit (loss) to date 1,600,000
Profit recognized in prior years -
Profit (loss) for the year 1,600,000

20x1
Total contract price 10,000,000
Multiply by: % of completion 40%
Contract revenue to date 4,000,000
Contract revenue in prior yrs. -
Contract revenue for the year 4,000,000
Cost of construction (a) (2,400,000)
Profit (loss) for the year 1,600,000

2. How much is the cost of construction recognized as expense in 20x2?

a. 2,100,000 b. 2,400,000 c. 3,800,000 d. 1,500,000
Ans. 2,100,000
Solution:
20x2
Total contract price 10,000,000
Costs incurred to date (a) 4,500,000
Estimated costs to complete 1,500,000
Estimated total contract costs (b) 6,000,000
Expected profit (loss) 4,000,000
Multiply by: % of completion (a) ÷ (b) 75%
Profit (loss) to date 3,000,000
Profit recognized in prior years (1,600,000)
Profit (loss) for the year 1,400,000
 20x2
Total contract price 10,000,000
Multiply by: % of completion 75%
Contract revenue to date 7,500,000
Contract revenue in prior yrs. (4,000,000)
Contract revenue for the year 3,500,000
Cost of construction (a) (2,100,000)
Profit (loss) for the year 1,400,000

3. How much is the gross profit recognized in 20x3?

a. 1,000,000 b. 1,500,000 c. 2,100,000 d. 2,800,000
Ans. 1,000,000
Solution:
20x3
Total contract price 10,000,000
Costs incurred to date (a) 6,000,000
Estimated costs to complete -
Estimated total contract costs (b) 6,000,000
Expected profit (loss) 4,000,000
Multiply by: % of completion (a) ÷ (b) 100%
Profit (loss) to date 4,000,000
Profit recognized in prior years (3,000,000)
Profit (loss) for the year 1,000,000

20x3
Total contract price 10,000,000
Multiply by: % of completion 100%
Contract revenue to date 10,000,000
Contract revenue in prior yrs. 7,500,000
Contract revenue for the year 2,500,000
Cost of construction (a) (1,500,000)
Profit (loss) for the year 1,000,000