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Not third year Third year Contract costs incur b. Not third year Fourth year Billings per year 10,000,000 7,000,000 3,000,000 Collections 1,050,000 construction recognized in 20x2, respectively? c. Third year Third year Collections on billings per year 9,500,000 6,650,000 3,850,000 Estimated costs to complete 2,700,000 Gross profit Revenue Cost of construction d. Third year Fourth year d. Estimated costs to complete AICPA - Adapted) 8,840,000 1,720,000 a. 700,000 7,000,000 6,300,000 (at each yr.-end) How much is the revenue and profit recognized in 20x1, b. 920,000 6,000,000 5,080,000 respectively? 5.500 000 9. Which of the following is an output method of measuring an c. 800,000 4,700,000 Requirements: . 1,500,000; 150,000 entity's progress towards the complete satisfaction of a c. 1,470,000; 120,000 d. 920,000 6,200,000 5,280,000 Compute for the gross profits, revenues and costs of b. 1,580,000; 230,000 d. 1,420,000; 70,000 performance obligation in a contract with a customer? construction in 20x1, 20x2 and 20x3, respectively. costs incurred c. appraisal of results achieved Provide the journal entries under (i) traditional accounting The performance obligation is satisfied over time. However, resources consumed d. labor hours expended 2. During 20x1, Cord Builders, Inc. started work on a P9,000,000 Friedland Co. cannot reasonably measure the outcome of the and (ii) PFRS 15. fixed-price construction contract. Cord appropriately uses the c. Determine the amounts presented in the financial statements. performance obligation but expects to recover all contract 10. An entity enters into a contract with a customer to build an percentage-of-completion method in accounting for the costs incurred. How much are the gross profit, revenue and asset for PIM. In addition, the terms of the contract include a contract. Cord's accounting records disclosed the following: cost of construction recognized in 20x2, respectively? Use the information in the preceding problem except that penalty of P100,000 if the construction is not completed within 20x1 20x2 Gross profit Revenue Cost of construction Electrified Co. cannot reasonably measure the outcome of the three months of a date specified in the contract. Which of the Cumulative contract costs incurred 3,900,000 6,300,000 0 performance obligation but expects to recover all contract a. 0 0 following statements is correct? Estimated total costs at completion 7,800,000 8,100,000 . 0 3,920,000 3,920,000 costs incurred (i.e., ignore the 'estimated costs to complete"). a. The transaction price is a fixed amount of P900,000. c. 0 5,080,000 5,080,000 b. The transaction price includes a fixed amount of How much are the revenue and cost of construction recognized in d. (420.000) 0 Requirements: 20x2, respectively? P1,000,000 and a variable amount of P100,000. Compute for the gross profits, revenues and costs of C. The transaction price includes a fixed amount of P900,000 a. 2,220,000; 2,150,000 c. 2,520,000; 2,420,000 At contract inception, Friedland Co. assessed the contract in construction in 20x1, 20x2 and 20x3, respectively. and a variable amount of P100,000. b. 2,520,000; 2,400,000 d. 2.500.000: 2.400.000 accordance with the principles of PERS 15 and concludes that Provide the journal entries under (i) traditional accounting AICPA - Adapted) d. The transaction price is a variable amount of P900,000, it has a single performance obligation that is satisfied at a and (ii) PERS 15. Determine the amounts presented in the financial statements. Use the following information for the next three questions: point in time, which is when the construction is completed In 20x1, Friedland Co. entered into a contract with a customer for and legal title over the constructed building is transferred to PROBLEM 3: EXERCISES the construction of a building. The contract price is a fixed fee of the customer. How much are the gross profit, revenue and In 20x1, Electrified Construction Co. enters into a contract to PROBLEM 4: MULTIPLE CHOICE - COMPUTATIONAL P12,000,000. Information on the contract is shown below: cost of construction recognized in 20x2, respectively? construct a building for a customer. Electrified identifies its Gross profit Revenue Cost of construction In 20x1, Johnny Co. enters into a contract to build a house for 20x1 20x2 performance obligation to be satisfied over time. Electrified 0 0 Bravo Co. for a fixed contract price of P4,500,000. At contract Costs incurred per year 3,920,000 5,080,000 . 0 measures its progress on the contract based on costs incurred b. 0 3,920,000 3,920,000 inception, Johnny Co. assesses its performance obligations in Estimated costs to complete 5,880,000 1,000,000 The contract price is P20M. Electrified has an unconditional 2,400,000 2,400,000 the contract and concludes that it has a single performance ight to all billings made in accordance with the billing schedule d. (420,000) 0 0 obligation that is satisfied over time. Johnny Co. determines 3. At contract inception, Friedland Co. assessed the contract in stated in the contract. Information on the construction is as that the measure of progress that best depicts its performance accordance with the principles of PERS 15 and concluded that follows: in the contract is the inputs method based on costs incurred. it has a single performance obligation that is satisfied over In 20x1, ABC Co. enters into a contact with a customer for the construction of a building. The contract price is P6M. ABC Co. At the end of 20x1, Johnny Co.'s records show the following: time. Friedland Co. determined that the appropriate measure 342 Chapter 7 Construction Contracts 343 344 Chapter 7 Construction Contracts 345 uses the 'cost-to-cost' method in measuring its progress on the contract. Use the following information for the next two questions: In 20x1, Taste Construction Co. started work on a P5M fixed price 14. Dawn Co. was contracted to build a house for a customer. The ABC Co. estimates total contract costs at completion of contract. Information on the construction is shown below: 12. Beaver Co., a construction firm, enters into a contract to build contract price was P25,000,000. Dawn Co. uses the percentage P4M. ABC incurs actual costs of PIM in 20x1. 20x1 20x2 In 20x2, ABC incurs actual costs of P2.45M and revises its 20x3 a dam for a customer, The contract price is total construction of completion method, based on costs, in recognizing revenue Costs incurred to date 1,425,000 4,040,000 5,080,000 costs plus 20% thereof. However, the variable fee increases to from the contract. The estimated total contract costs were estimate of total contract costs at completion to P4.6M. Estimated costs to complete 3.325.000 1.010,000 25% if the project is completed within three years. Beaver Co P22,000,000, Dawn Co. incurred the following costs: ABC completes the construction in 20x3. The actual total incurs the following costs : 20x1 20x2 cost of the contract is P4.5M. Taste uses the percentage of completion method (based on costs) 20x1 20x2 20x3 Costs incurred to date 3,960,000 18,400,000 in recognizing revenue and profit from the contract. Costs incurred each year 10,500,000 How much is the profit recognized in 20x3? 14,300,000 6,000,000 Estimated costs to complete 19,500,000 6,200,000 n 20x2, the customer changed the specification of the window a. 420,000 c. 500.000 b. 450,000 8. How much is the loss provision recognized in 20x2? glasses to tempered glass and agreed to pay an additional 5% of d. 550,000 25,000 c. 10,000 In 20x1, it is not highly probable that the additional fee will be he original contract price. The incremental cost was estimated to b. 15,000 d. 5,000 e P1,000,000. The performance obligation in the contract remains 7. On Jan. 1, 20x1, Tuesday Construction Co. enters into a received. However, after a change in circumstances in 20x2, it is now highly probable that the additional fee will be received. single performance obligation. How much are the revenue and contract to construct a building for a customer. Tuesday How much is the profit (loss) recognized in 20x3? Beaver Co. uses the percentage of completion method based on gross profit recognized in 20x2, respectively? dentifies its performance obligation to be satisfied over time. a. (30,000) c. (40,000) costs. How much profit is recognized in 20x3? 12,060,000; 2,068,000 c. 16,800,000; 2,068,000 Tuesday uses the input method based on costs to measure its b. 30.000 d. 40.000 a. 850,000 C. 1,200,000 b. 14,268,000; 2,060,000 d. 16,500,000; 2,060,000 progress on the contract. The contract price is POM. b. 980.000 d. 1,500,000 Information on the construction is provided below: Use the following information for the next two questions: 15. In 20x1, Espresso Co. started work on a long-term construction 20x1 20x2 20x3 Bass Co. appropriately uses the cost-to-cost method in measuring 13. In 20x1, Light Co. started work on a construction contract with contract. Espresso Co. accumulates costs and recognized Contract costs incurred per year 3,120,000 3,810,000 810,000 its progress on a construction contract with a customer. profits using the "Construction in progress" account. Billings per year a fixed price of P4,000,000. Light Co. uses the percentage of 4,000,000 3,000,000 2,090,000 Information on this contract, which was completed in 20x3, is completion method and measures its progress based on Information on the contract is as follows: Estimated costs to complete 4.680,000 770.000 shown below: ssessment of the physical completion of the project. The 20x1 20x2 20x1 20x2 20x3 estimated total contract costs were P3,000,000. Information on Accounts receivable, ending balances 250,000 750,000 All billings in a year were collected also in that year. What Transaction price 20,000,000 20,000,000 20,000,000 the project is as follows: Costs incurred each year 262,500 480,000 amounts are presented in Tuesday's Dec. 31, 20x2 statement of Profit each year 400,000 1,400,000 financial position under traditional accounting and PFRS 15, (200,000) 20x1 Construction in progress, ending balances 305,000 910,000 Costs incurred each year 3,600.000 8,200,000 Costs incurred per year 20x2 1,425,000 1,125,000 Progress billings, cumulative balances 250,000 1,050,000 respectively? AICPA - Adapted) Physical completion of project Gross amount due from (due to) cust. 32% 90% Contract asset (liability) a. 600.000 Espresso bills the customer based on the project's stage of 600,000 10. How much are the contract costs incurred in 20x2? How much are the revenue and cost of construction recognized in completion, which is computed using the costs incurred. How b. (600,000) (600,000) a. 5,800,000 c. 6,600,000 20*2? c. (1,100,000) 6,200,000 1. 10,200,000 much are the profit, revenue and total collections in 20x2, (1,100,000) Revenue Cost of construction respectively? 1,100,000 a. 2,320,000 1,740,000 a. 125,000; 605,000; 300,000 c. 50,000; 242,000; 120,000