LONG-TERM CONSTRUCTION CONTRACTS (2)

01. The Matibay Construction Corporation uses the percentage-of-completion method of recognizing income from
long-term construction contracts. In 2018, Matibay entered into a fixed-price contract to construct a bridge for
P30,000,000. Estimated costs to complete the construction and contract costs incurred up to 2020 were
as follows:
Cumulative Estimated costs
Costs incurred to complete
As of December 31, 2018………..P 2,000,000 P16,000,000
As of December 31, 2019……….. 11,000,000 11,000,000
As of December 31, 2020……….. 20,000,000 4,000,000

What is the percentage of completion during the year 2020?

a. 25.00% b. 33.33% c. 50.00% d. 83.33%

02. In 2019, the Kenetics Construction Company started a construction job with a total contract price of P600,000.
Any costs incurred are expected to be recoverable. The job was completed on December 31, 2020.
Additional data are as follows:
2019 2020
Actual costs incurred P225,000 P255,000
Estimated remaining costs 225,000 -
Billed to client 240,000 360,000
Collected from client 225,000 375,000

Under the percentage of completion method, what amount of gross profit should be realized in 2019?
a. P150,000 b. P120,000 c. P75,000 d. P60,000

03. Using the same information in no. 2 and under the percentage of completion method, what amount of gross profit
should be realized in 2020?
a. P120,000 b. P75,000 c. P45,000 d. P0

04. Lakeshore Construction Company has consistently used percentage of completion method of recognizing income.
During 2019, the company entered into a fixed-price contract to construct an office building for P3,000,000.
Information relating to the contract is as follows:
2019 2020
Percentage of completion 20% 60%
Estimated total cost at completion P2,250,000 P2,400,000
Income recognized (cumulative) 150,000 360,000

How much costs were incurred in 2020?

a. P600,000 b. P960,000 c. P990,000 d. P1,440,000

05. The Gamboa Construction Company started work on three job sites during the current year. Any costs
incurred are expected to be recoverable. Data relating to the three jobs are given below:

Contract Cost Estimated costs Billings Collection

Site price incurred to complete on contract on contract
Batangas…….P500,000 P375,000 P500,000 P500,000
Laguna………. 700,000 100,000 P400,000 100,000 100,000
San Fernando 250,000 100,000 100,000 150,000 100,000

What would be the amount of construction in progress to be reported on the year-end statement of financial
position if the percentage- of-completion method is used?
a. P765,000 b. P700,000 c. P265,000 d. P200,000

06. During 2020, Reach Construction started work on a P3,000,000 fixed-price construction contract. Any costs
incurred are expected to be recoverable. The accounting records disclosed the following data for the year
ended December 31, 2020:

Costs incurred……………………………………………….P 930,000

Estimated cost to complete………………………………… 2,170,000
Progress billings…………………………………………….. 1,100,000
Collections…………………………………………………… 900,000

How much loss should Reach Construction have recognized in 2020 if the percentage- of-completion method
is used?
a. P100,000 b. P50,000 c. P30,000 d. P0
07. Daimler Construction Company uses the percentage –of-completion method of accounting. During 2020,
Daimler contracted to build an apartment house for an individual for P10 million. The company estimated that
total costs would amount to P8,000,000 over the period of construction costs during 2020. In connection with this
contract, Daimler incurred P2,000,000 of construction cost during 2020. Daimler billed and collected P1.5 million
from the client in 2020. How much gross profit should Daimler recognize in 2020?
a. P300,000 b. P250,000 c. P187,500 d. P125,000

08. In 2020, AJD Construction Co. was contracted to build Village Company’s private road network for P100
million. The project was estimated to be completed in two years, and the contract provided for:

(1) 5% mobilization fee (to be deducted from the last billing) payable within 15 days after signing of the contract,
(2) 10% retention provision on all billings, and
(3) Payment of progress billings within 10 days from acceptance.

AJD, which uses the percentage-of-completion method of accounting, estimated a 25% gross margin
on the project. By the end of 2020, AJD had presented progress billings corresponding to 50% completion. All
of the progress billing presented in 2020 were accepted, except the last one for 10% which was accepted on
January 7 2021. With the exception of one bill for 8% which was due on January 7, 2021, off of the billings
accepted in 2020 were settled. Payments made by Village Company in 2020 amounted to:
a. P33,800,000 b. P38,500,000 c. P 40,000,000 d. P45,000,000

09. 7ME Construction Corporation has the following date for large jobs in its Jobs in Progress account (000 omitted):

Project No. Actual Cost Estimated Total Costs Contract Price % of Completion
101 P 8,756 P172,800 P192,000 5
102 11,457 14,875 17,500 75
103 53,865 61,250 87,500 80
104 22,800 39,760 49,700 55
105 44,500 122,310 151,000 35
P141,378 P410,995 P497,700
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The company accounts for its large jobs by the percentage of completion method. Billings are done as follows:
(a) 20% down payment upon contract signing; and (b) balance is billed according to percentage of completion,
less an application of the down payment which is also according to percentage of completion. How much total
billings were made by the company?
a. P203,286 b. P99,540 c. P151,413 d. P189,266

10. Using the same information in no. 6, how much total revenue should be recognized by the company for the
period under consideration?
a. P120,060 b. 172,910 c. P146,485 d. P219,727