Long Term Contracts

On January 2, 2015, QUICKBUILD ERECTORS entered into contract to construct two projects.
The following data relate

to the construction activities.
Project AProject B
Contract price P945,000 P675,000
Cost incurred during 2015 540,000 630,000
Estimated costs to complete 270,000 157,500
Billings to customer 337,500 607,500
1. What amount of gross profit should QUICKBUILD ERECTORS report in its 2015 income statement under the
following methods?
Percentage of Zero Profit
Completion Method Method
a. P 0 P (90,000)
b. P (112,500) P (22,500)
c. P ( 22,500) P 0
d. P ( 22,500) P(112,500)
2. BEST - EVER CONSTRUCTION, INC . recognizes construction revenue and costs using the percentage of completion
method. During 2014, a single long-term project was begun which continued through 2015. Information on the
project follows:
2014 2015
Accounts receivable P350,000 P1,050,000
Incurred costs during year 367,500 672,000
Construction in progress 427,000 1,274,000
Billings on contract 350,000 1,470,000
The construction accounts are at amounts t0-date.
What is the gross profit recognized from this long-term contract?
2014 2015
a. P 77,000 P 798,000
b. 77,000 350,000
c. 59,500 448,000
d. 59,500 175,000
3. CONCRETE CONSTRUCTION COMPANY began construction work in 2014 for a project with a contract price of
P8,000,000. CONCRETE uses the cost-to-cost percentage of completion method. The financial for 2014 relating to
the contract shows the following:
Accounts receivable P500,000
Construction in Progress 1,600,000
Progress billings to date 1,500,000
Gross profit earned in 2014 200,000
Calculate the following items for the year 2014.
A. B. C. D.
Cash collections P1,000,000 P1,000,000 P1,400,000 P7,500,000
Cost incurred to date P1,400,000 P1,600,000 P1,600,000 P1,400,000
4. On March 1, 2011, GG Company contracted to construct a factory building fàr HH Mfg. For a total contract price of
P1, 344, 000. The building was completed by October 31, 2013. The company uses percentage of completion
method.
2011 2012 2013

Contract costs incurred during the year P512, 000 P416, 000 P232, 000
Estimated costs to complete the contract 512, 000 232, 000 -
Billings during the year 512,000 560, 000 272, 000
What is the amount of profit or loss to be recognized or the year ended December 31, 2013?
A. P36,000 B. (P12,800) C. P184,000 D. P171,200
5. RAM Corp. recognizes construction revenue and cost using the percent-of-completion method. During 2013, a single
long term project begun which continue through 2013.
Information on the project follows:
2013 2014
Collections 200,000 600,000
Construction in progress net of billings 44,000 112,000
Contract billings 200,000 840,000
Current year gross profit 34,000 100,000.
How much is the cost incurred each year?
A. 210,000; 684,000 B. 210,000; 384,000 C. 125,000; 356,000 D. 125,000; 796,000
6. HHI Builders is in business of contracting the construction of apartment buildings. Two buildings were in progress at
the beginning of 2003. The status of these buildings at the beginning of the year as follows:
Estimated
Cost Contract Cost incurred complete
Contract Price to 1/1/03 1/1/03
Apartment- Cubao P16,000,000 P 6,000,000 P8,400,000
Apartment- Marikina 25,200,000 P 15,600,000 6,900,000
During 2003, the following cost were incurred:
Apartment – Cubao P6,000,000 (estimated cost to complete as of 12/31/03, P2,400,000)
Apartment – Marikina P7,500,000 (job Completed)
How much is the gross profit in 2003 if HHI uses the percentage –of – completion method
a. P 978,000 c. P2,620,000
b. P2,100,000 d. P3,600,000
SOLID ERECTORS 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:
Estimated Collection
Contract Actual Cost to Billings on from
Site Price Cost Complete Contract Customers
Cebu P 500,000 P 375,000 - P 500,000 P 500,000
Bohol 600,000 254,167 P 381,250 180,000 100,000
Davao 250,000 100,000 100,000 150,000 100,000
7. Calculate the net amount to be reported on the balance sheet for the above projects under the percentage of
completion method:
A. Due to Customers P (13,750) C. Due from customers P 11,250
B. Due to Customers P (11,250) D. Due from customers P 13,750
8. Calculate the net amount to be reported on the balance sheet for the above projects under the zero profit method.
A. Due to Customers P(13,750) C. Due from Customers P 11,250
B. Due to Customers P(11,250) D. Due from customers P 13,750
9. Calculate the difference in net income for 2014 between using the % of completion method and using the zero profit
method over the afore-mentioned transactions.
A. P25,000 C. P 35,417
B. P34,715 D. P 45,317
10. Mabi Corp. was contracted by Mr. Tristan P. to construct 35 condominium units. The estimated total cost of
construction was P28,000,000. Mabi bills its clients at 120% of total costs estimated to complete a project. Details
regarding the contract are given below:
Units finished Costs incurred to date Estimated cost at completion

2011 10 P8,412,500 P33,650,000
2012 18 P20,735,000 P31,900,000
2013 7 P31,500,000 ?
What is the RGP during 2012 using the output measures?
A. P1,105,000 B. P1,700,000 C. P1,360,000 D. P1,410,000

Long Term Contracts

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Long Term Contracts

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On January 2, 2015, QUICKBUILD ERECTORS entered into contract to construct two projects.

The following data relate

2011 2012 2013

Units finished Costs incurred to date Estimated cost at completion

What is the RGP during 2012 using the output measures?

A. P1,105,000 B. P1,700,000 C. P1,360,000 D. P1,410,000

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