Problem 1
Problem 1
Problem 1
ABC Co. makes progress billings and collections on its fixed price construction contracts
as follows:
15% mobilization fee is due at contract inception, to be deducted from the final billing.
Subsequent progress billings are due within 2 weeks upon customer acceptance, net of
10% customer retention.
ABC made the following three subsequent progress billings on a project with a contract price of
1,000,000.
20% on Nov. 1, 2021. The customer accepted the billing on Nov. 4, 2021.•10% on Dec.
22, 2021. The customer disputed the billing.
7% on Dec. 26, 2021. The customer accepted the revised billing on Dec. 30, 2021.
Requirement: Compute the amount of collections from the project during 2021
Solution:
Mobilization Fee (1M* 15%) 150,000
Collection from the 20% progress billing (1M*20%*90%) 180,000
Total Collections 330,000
Problem 2
ABC Company enters into a construction contract with a customer. The contract price is
10,000,000. Information on the contract follows:
At the 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 the
cost-to-cost method.
Requirement: Compute for the revenue, cost of construction, and gross profit in 2021,2022, and
2023, respectively.
Problem 3
XYZ Company uses the percentage of completion method to account for its fixed price
construction contracts and makes progress billings as follows:
20% down payment upon signing of contract.
The balance is billed based on percentage of completion minus an application of the
down payment which is also based on the percentage of completion.
Requirement: Compute for (a) total progress billings made and (b) total construction revenue.
Problem 4
In 20x1, Electrified Construction Co. enters into a contract to construct a building for a customer.
Electrified identifies its performance obligation to be satisfied over time. Electrified measures
progress on the contract based on the costs incurred. The contract price is P20M. Electrified has
an unconditional right to all billings made in accordance with the building schedule stated in the
contract. Information on the construction is as follows:
Requirement: Compute for the gross profits, revenues and costs of construction in 20x1, 20x2
and 20x3, respectively.
Solution:
Problem 5
Angel Beats Inc. has consistently used the percentage of completion method on January 30,2030,
it has begun construction work on a 6M project. At the inception date , the estimated cost of
construction was 4.5M . The ff were data relating to the contract :
Income recognized at 12/31/2030……………… 600,000
Coat incurred 1/1/2030 - 12/21/2031………… 3,600,000
Estimated cost to complete at 12/21/2031………1,200,000
How much income should Angel beats recognize as income for the year ended 12/31/2031?
Problem 6
On august 1,2026 , Clannad After story Inc. began constructing 1,750,000 contract. As of year-
end, following relevant information is provided:
On august 1,2026 , Clannad After story Inc. began constructing 1,750,000 contract. As of year-
end, following relevant information is provided:
Problem 8
Seasons Construction is constructing an office building under contract for Cannon Company.
The Contract calls for progress billings and payments of P1,240,000 each quarter. The total
contract price is P14,880,000 and Seasons estimates total costs of P14,200,000. Seasons
estimates that the building will take 3 years to complete, and commences construction on
January 2, 20x5.
At December 31, 20x5, Seasons estimates that it is 30% complete with the construction, based on
costs incurred. What is the total amount of Revenue from Long-Term Contracts recognized for
20x5 and what is the balance in the Accounts Receivable account assuming Cannon Company
has not yet made its last quarterly payment?
Solution:
Contract Price x Percentage of Completion
P14,880,000 x 30% = P4,464,000
Problem 9
Seasons Construction is constructing an office building under contract for Cannon Company.
The Contract calls for progress billings and payments of P1,240,000 each quarter. The total
contract price is P14,880,000 and Seasons estimates total costs of P14,200,000. Seasons
estimates that the building will take 3 years to complete, and commences construction on
January 2, 20x5.
At December 31, 20x5, Seasons Construction estimates that it is 75% complete with the
building; however, the estimate of total costs to be incurred has risen to P14,400,000 due to
unanticipated price increases. At December 31, 20x4, Seasons estimated it was 30% complete.
What is the total amount of Construction Expenses that Seasons will recognize for the year
ended December 31, 20x5.
Solution:
(New estimated total costs x Percentage of Completion) – (Old estimated total costs x Previous
year estimated percentage completion)
(14,400,000 x 75%) – (14,200,000 x 30%) = P6,540,000
Problem10
.
Seasons Construction is constructing an office building under contract for Cannon Company.
The Contract calls for progress billings and payments of P1,240,000 each quarter. The total
contract price is P14,880,000 and Seasons estimates total costs of P14,200,000. Seasons
estimates that the building will take 3 years to complete, and commences construction on
January 2, 20x5.
At December 31, 20x5, Seasons Construction estimates that it is 75% complete with the
building; however, the estimate of total costs to be incurred has risen to P14,400,000, due to
unanticipated price increases. What is reported in the balance sheet at December 31, 20x5 for
Seasons as the difference between the Construction in Process and the Billings on Construction
in Process accounts, and is it a debit or a credit?
Solution:
(Total contract price x Estimated Percentage of Completion) – (Payment each quarter x 8)
(14,880,000 x 75%) – (1,240,000 x 8) = P1,740,000 debit