AFAR-05a (solutions) Page 1

Problem III – DJ Builders

2019 2020 2021
Contract Price 2,000,000 *2,040,000 2,040,000
Cost Incurred Each Year (CIEY) 560,000 **640,000 ***370,000
+: Cost Incurred in Prior Years (CIPY) ____-0- 560,000 1,200,000
Cost (actual) Incurred to Date 560,000 **1,200,000 ***1,570,000
+: Estimated Cost to Complete 1.040,000 400,000 ______-0-
Total Estimated Cost 1,600,000 1,600,000 1,570,000
Estimated Gross Profit 400,000 440,000 470,000
x: Percentage of Completion (CI to date/TEC) 560/1,600 (1,200-16)/1600
or 35% or 74% ____100%

Recognized Gross Profit to Date 140,000 325,600 470,000

Less: Recognized Gross Profit in Prior Yr(s) ____-0- 140,000 325,600
RGP Each Year - % of Completion Method 140,000 185,600 144,400

RGP Each Year – Cost Recovery Method ____-0- _____-0- 470,000

* P2,000,000 + P40,000 variations in contract; **to date means it include the additional costs of P20,000
***or CIEY – 2021, P300,000 + P 16,000 = P316,000; CIPY, P1,200,000 – P16,000 = P1,184,000
Journal Entries: Percentage of Completion/Over Time
(000’s omitted) 2019 2020 2021
1. To record Cost Incurred Each Year
Construction in Progress (CIP) 560 624 386
Materials Inventory 16 16
Cash, payables, materials, etc. 560 640 370
2. Progress / Contract Billings
Accounts receivable 750 560 730
Progress billings 750 560 730
3. Collections
Cash 560 640 840
Accounts receivable 560 640 840
4. Recognized Rev., Cost & GP
Cost of Construction 560 624.0 386.0
CIP 140 185.6 144.4
Revenue from Construction 700 809.6 530.4
5. To close CIP and Progress Billings
Progress billings 2,040
Construction in Progress 2,040
Journal Entries: Cost Recovery Method/Point In Time
(000’s omitted) 2019 2020 2021
1. To record Cost Incurred Each Year
Construction in Progress (CIP) 560 624 386
Materials Inventory 16 16
Cash, payables, materials, etc. 560 640 370
2. Progress / Contract Billings
Accounts receivable 750 560 730
Progress billings 750 560 730
3. Collections
Cash 560 640 840
Accounts receivable 560 640 840
4. Recognized Rev., Cost & GP
Cost of Construction 560 624 386
CIP 470
Revenue from Construction 560 624 856
5. To close CIP and Progress Billings
Progress billings 2,040
Construction in Progress 2,040
AFAR-05a (solutions) Page 2
Or, alternative approach - % of Completion Method / Over Time
Recognized Recognized Recognized in
To Date in Prior Years Current Year
2019 Revenue (Contract Price x % of completion)
(2,000,000 x 35%) 700,000 -0- 700,000
Cost (Total Est’d. Cost x % of completion)
(P1,600,000 x 35%) 560,000 -0- 560,000
Gross Profit (Est’d. Gross Profit x % of completion)
(P400,000 x 35%) 140,000 -0- 140,000
2020
Revenue (P2,040,000 x 74%) 1,509,600 700,000 809,600
Cost (P1,600,000 x 74%) 1,184,000 560,000 624,000
Gross Profit (P440,000 x 74%) 325,600 140,000 185,600

2021
Revenue (P2,040,000 x 100%) 2,040,000 1,509,600 530,400
Cost (P1,570,000 x 100%) 1,570,000 1,184,000 386,000
Gross Profit (P470,000 x 100%) 470,000 325,600 144,400

Or, alternative approach – Cost Recovery Method/Zero-Profit Approach/Point In Time

Recognized Recognized Recognized in
To Date in Prior Years Current Year
2019
Revenue (equivalent to costs incurred) 560,000 -0- 560,000
Cost 560,000 -0- 560,000
Gross Profit -0- -0- -0-

2020
Revenue 1,184,000 560,000 624,000
Cost 1,184,000 560,000 624,000
Gross Profit -0- -0- -0-

2021
Revenue 856,000 1,184,000 2,040,000
Cost 386,000 1,184,000 1,570,000
Gross Profit 470,000 -0- 470,000

Problem IV – PJD Construction

2019
Contract Price 4,000,000
Less: Total Estimated Cost
Cost Incurred Each Year
+: Cost Incurred in Prior Years
Cost Incurred to Date
+: Estimated Cost to Complete
Total Estimated Cost
Estimated Gross Profit
X: Percentage of Completion (CI to date/TEC)
Recognized Gross Profit to Date
Less: Recognized Gross Profit in Prior Yr(s)
RGP (L) Each Year - % of Completion Method

Problem V – DJ Builders
2019 2020 2021
Contract Price 2,000,000 2,000,000 2,000,000
Less: Total Estimated Cost
Cost Incurred Each Year 360,000 ? 820,000
+: Cost Incurred in Prior Years _______ _______ _______
Cost Incurred to Date
+: Estimated Cost to Complete _______ ? _______
Total Estimated Cost _______ _______ _______
Estimated Gross Profit ?
X: Percentage of Completion (CI to date/TEC) ?
Recognized Gross Profit to Date _______ _______ _______
Less: Recognized Gross Profit in Prior Yr(s) _______ _______ _______
RGP (L) Each Year - % of Completion Method 40,000 140,000 (20,000)
 AFAR-05a (solutions) Page 3

Problem VII Requirement 1 Requirement 2

- % of Completion - % of Completion
Cost to Cost Output Measure –
Proportional
2019 2019
Contract Price _______
Cost Incurred Each Year
+: Cost Incurred in Prior Years _______ _______
Cost (actual) Incurred to Date _______ _______
+: Estimated Cost to Complete
Total Estimated Cost _______ _______
Estimated Gross Profit _______ _______
x: Percentage of Completion (CI to date/TEC)
Recognized Gross Profit to Date
Less: Recognized Gross Profit in Prior Yr(s) _______ _______
RGP Each Year

% of Completion Method - Proportional Cost Approach

Recognized Recognized Recognized in
To Date in Prior Years Current Year
2019 Revenue (Contract Price x % of completion)

Cost (Total Est’d. Cost x % of completion)

Gross Profit (Est’d. Gross Profit x % of completion)

% of Completion Method – Actual Cost Approach (Revenue)

Recognized Recognized Recognized in
To Date in Prior Years Current Year

2019
Revenue
Cost
Gross Profit

% of Completion Method – Actual Cost Approach (Gross Profit)

Recognized Recognized Recognized in
To Date in Prior Years Current Year

2019
Revenue
Cost
Gross Profit

Problem VIII Requirement 6 Requirement 7

- Cost Recovery - % of Completion
2019 2020 2019 2020
Contract Price _______ _______ _______ _______
Cost Incurred Each Year
+: Cost Incurred in Prior Years _______ _______ _______ _______
Cost (actual) Incurred to Date _______ _______ _______ _______
+: Estimated Cost to Complete
Total Estimated Cost _______ _______ _______ _______
Estimated Gross Profit _______ _______ _______ _______
x: Percentage of Completion (CI to date/TEC)
Recognized Gross Profit to Date
Less: Recognized Gross Profit in Prior Yr(s) _______ _______ _______ _______
RGP Each Year _______ _______ _______ _______
***********************
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