Exercise Problems

1. Mediocre Inc. has entered into a very profitable fixed price

contract for constructing a high rise building over a period
relating to the contract during the first year:

• Cost of Material = 2.5 M

• Site Labor Cost = 2.0 M
• Agreed administrative costs as per contract to be reimbursed
by the customer = 1 M
• Dep’n of the plant used for the construction = 0.5 M
• Marketing costs for selling apartments, when they are ready
=1M

Total estimated cost of the project = 18 M

The percentage of completion of this contract at the year-end is:

a. 33 1/3%
b. 27%
c. 25%
d. 39%
2. Cord Builders, Inc. has consistently used the percentage-of-completion
method of accounting for construction-type contracts. During 2011 Cord
started work on a P5,000,000 fixed-price construction contract that was
completed in 2013. Cord’s accounting records disclosed the following:

December 31
2011 2012
Cost incurred to date 1,350,000 2,250,000
Estimated cost to complete 3,150,000 400,000

How much income would Cord have recognized on this contract for
the year ended December 31, 2011?

a. 150,000
b. 750,000
c. 100,000
d. 1,000,000
3. Cord Builders, Inc. has consistently used the percentage-of-completion
method of accounting for construction-type contracts. During 2011 Cord
started work on a P5,000,000 fixed-price construction contract that was
completed in 2013. Cord’s accounting records disclosed the following:

December 31
2011 2012
Cost incurred to date 1,350,000 2,250,000
Estimated cost to complete 3,150,000 400,000

How much income would Cord have recognized on this contract for
the year ended December 31, 2012?

a. 150,000
b. 750,000
c. 100,000
d. 1,000,000
4. Cord Builders, Inc. has consistently used the percentage-of-completion
method of accounting for construction-type contracts. During 2011 Cord
started work on a P5,000,000 fixed-price construction contract that was
completed in 2013. Cord’s accounting records disclosed the following:

December 31
2011 2012
Cost incurred to date 1,350,000 2,250,000
Estimated cost to complete 3,150,000 400,000

How much income would Cord have recognized on this contract

under the zero profit method for the year ended December 31, 2011?

a. 150,000
b. 750,000
c. 100,000
d. 0
5. DJ Builders, Inc. has consistently used the percentage-of-completion
method of accounting for construction-type contracts. During 2011 DJ
started work on a P5,000,000 fixed-price construction contract that was
completed in 2013. DJ’s accounting records disclosed the following:

December 31
2011 2012
Cumulative contract costs incurred 3,900,000 6,300,000
Estimated total cost at completion 7,800,000 8,100,000

How much income would DJ have recognized on this contract for the
year ended December 31, 2012?

a. 150,000
b. 750,000
c. 100,000
d. 300,000
Costs incurred to date:
Materials 2,500,000
Direct Labor 2,000,000
Overhead:
Admin cost reimbursable 1,000,000
Depreciation during construction 500,000 6,000,000
Divided by: Total Estimated Costs 18,000,000
Percentage of completion 33 1/3%
 2011
Total Contract Price 5,000,000
Cost incurred to date 1,350,000
Estimated cost to complete 3,150,000
Total Estimated costs* 4,500,000
Expected gross profit* 500,000
Percentage of completion* 30%
Gross profit earned to date 150,000
Gross profit earned in prior years -
Gross profit earned this year 150,000

*Total Estimated Costs = Cost incurred to date + Est. cost to complete

*Expected gross profit = Contract price – Total Est. costs
*Percentage of completion = Cost incurred to date/Total est. costs
 2011 2012
Total Contract Price 5,000,000 5,000,000
Cost incurred to date 1,350,000 3,600,000
Estimated cost to complete 3,150,000 400,000
Total Estimated costs* 4,500,000 4,000,000
Expected gross profit* 500,000 1,000,000
Percentage of completion* 30% 90%
Gross profit earned to date 150,000 900,000
Gross profit earned in prior years - (150,000)
Gross profit earned this year 150,000 750,000

*Total Estimated Costs = Cost incurred to date + Est. cost to complete

*Expected gross profit = Contract price – Total Est. costs
*Percentage of completion = Cost incurred to date/Total est. costs
 2014
Construction Revenues 1,350,000
Cost incurred each year 1,350,000
Gross profit earned this year -
 2011 2012
Total Contract Price 9,000,000 9,000,000
Cost incurred to date 3,900,000 6,300,000
Total Estimated costs* 7,800,000 8,100,000
Expected gross profit* 1,200,000 900,000
Percentage of completion* 50% 77.77%
Gross profit earned to date 600,000 700,000
Gross profit earned in prior years - (600,000)
Gross profit earned this year 600,000 100,000

*Total Estimated Costs = Cost incurred to date + Est. cost to complete

*Expected gross profit = Contract price – Total Est. costs
*Percentage of completion = Cost incurred to date/Total est. costs
6. On April 1, 2013, BB Inc., entered into a cost-plus-fixed-fee
contract to construct an electric generator for Dalton Corporation.
At the contract date, BB estimated fixed fee stipulated in the
contract is 3,000,000. BB appropriately accounts for this contract
under the percentage-of-completion method. During 2013, BB
incurred costs of 700,000 related to the project, and the estimated
cost of December 31 to complete the contract is 1,400,000. Dalton
was billed 500,000 under the contract.

The gross profit to be recognized by BB Inc. under the contract on

December 31, 2013 is

a. 300,000
b. 100,000
c. 200,000
d. 0
7. The Robert Construction Corporation uses the percentage of
completion method of accounting. In 2013, Robert began work on a
contract it had received which provided for a contract price of
8,000,000. Other details follow:

Costs incurred 1,200,000

Estimated cost to complete 4,800,000
Billings 1,440,000
Collections 1,000,000

What should be the gross profit recognized in 2013?

a. 160,000
b. 240,000
c. 400,000
d. 1,600,000
8.Hansen Construction Inc. has consistently used the percentage-of-
completion method of recognizing income. During 2013 Hansen started
work on a 3,000,000 fixed-price construction contract. The accounting
records disclosed the following data for the year ended December 31,
2013:

Costs incurred 930,000

Estimated cost to complete 2,170,000
Progress Billings 1,100,000
Collections 700,000

How much loss should Hansen have recognized in 2013?

a. 230,000
b. 100,000
c. 30,000
d. 0
9. Marr Construction Company has consistently used the percentage-of
–completion method. On January 10,2012, Marr began work on a
6,000,000 construction contract. At the inception date, the estimated
cost of construction was 4,500,000. The following data relate to the
progress of the contract.

Income recognized at 12/31/12 600,000

Cost incurred 1/10/10 through 12/31/13 3,600,000
Est. cost to complete at 12/31/13 1,200,000

How much income should Marr recognizer for the year ended Demeber
31, 2013?

a. 300,000
b. 525,000
c. 600,000
d. 900,000
10. The following data relating to a construction job started by SS Co.
during 2013:

Total contract price 100,000

Actual costs during 2013 20,000
Est. remaining costs 40,000
Billed to customer during 2013 30,000
Received from customer during 203 10,000

How much gross profit would SS Co. recognized for 2013 under the zero
profit method and the percentage-of-completion method?

a. 0 and 13,333 respectively

b. 0 and 26,667 respectively
c. 4,000 and 13,333 respectively
d. 12,000 and 33,333 respectively
Costs incurred to date 700,000
Total Estimated cost 2,100,000
Percentage of completion 33 1/3%
Fixed Fee 300,000
Income Recognized 100,000
Contract Price 8,000,000
Total Estimated cost 6,000,000
Estimated Gross Profit 2,000,000
Percentage of completion 20%
Income Recognized 400,000
Expected contract revenue 3,000,000
Expected contract costs (930,000+2,170,000) 3,100,000
Expected Loss (100,000)
Contract Price 6,000,000
Total Estimated cost 4,800,000
Estimated Gross Profit 1,200,000
Percentage of completion 75%
Income Recognized 300,000
Under the zero profit method: no gross profit is to be recognized.

Under the percentage of completion method:

Contract Price 100,000

Total Estimated cost 60,000
Estimated Gross Profit 40,000
Percentage of completion 33 1/3%
Income Recognized 13,333
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