PSBA - MANILA

ACCOUNTING 308

PROBLEM 1
The following data pertains to GINNY Co's construction jobs, which commenced during 2020:
Project 1 Project 2
Contract price 1,680,000 1,200,000
Costs incurred during 2020 960,000 1,120,000
Estimated costs to complete 480,000 160,000
Billed to customers during 2020 600,000 1,080,000
Received from customers during 2020 360,000 1,000,000
Required: 1. Gross profit (Loss) under the zero profit method in 2020 (In case your answer is loss
for example of 5,000, write it as (5,000).
2. Gross profit (Loss) under the percentage of completion method in 2020

PROBLEM 2
SPARK Co. recognizes construction revenue and expenses using the percentage-of-completion
method. During 2019, a single long-term project was begun, which continued through 2020.
Information on the project follows:
2019 2020
Accounts receivable from construction contract 400,000 1,200,000
Construction expenses 420,000 768,000
Construction in progress 488,000 1,456,000
Partial billings on contract 400,000 1,680,000
Required: 3. Profit recognized from the long-term construction contract in 2020

PROBLEM 3
MANDY Construction Company has consistently used the percentage-of-completion method. On
January 10, 2019, MANDY began work on a P12,000,000 construction contract. At the inception date,
the estimated cost of construction was P9,000,000. The following data relate to the progress of the
contract:
Income recognized at 12/31/2019 1,200,000
Cost incurred 1/10/19 through 12/31/20 7,200,000
Estimated cost to complete at 12/31/20 2,400,000
Required: 4. Income recognize for the year ended December 31, 2020

PROBLEM 4
On April 1 , 2020, BARNEY Co. Inc., entered into a cost-plus-fixed-fee contract to construct an electric
generator for DION Corporation. At the contract date, BARNEY estimated that it would take two years
to complete the project at a cost of P4,000,000. The fixed fee stipulated in the contract is P600,000.
Barney accounts for this contract under the percentage-of-completion method. During 2020, Barney
incurred cost of P1,400,000 related to the project, and the estimated cost of December 31, 2020 to
complete the contract is P2,800,000. Dion was billed P1,000,000 under the contract.
Required: 5. Gross profit to be recognized by BARNEY Inc. under the contract on December 31,
2020.

PROBLEM 5
In 2020, NEON Construction Co. was constructed to do the private road network of Subdivision Corp.
for P200M. The project was estimated to be completed in two years. The construction contract
provided among other things the following:
a. Five percent mobilization fee (to be deducted from the last billing) payable within fifteen days after
the signing of the contract;
b. Retention provision of 10% on all billings, payable with the final bill after the acceptance of the
completed project.
c. and Progress billings on construction are payable within seven days from acceptance.
NEON estimated its gross margin on the project at 25%. It used the percentage of completion
method of accounting. By the end of the year, NEON presented progress billings corresponding to
50% completion. Subdivision Corp. accepted all the bills presented except the last one for 10%
which was accepted on January 10, 2021. With the exception of the second to the last billing of 8%
accepted in 2020 due on January 3, 2021. All accepted billings were settled.
Required: 6. In 2020, NEON realized gross profit from the Subdivision project in the amount of?
7. Total cash collected in 2020

PROBLEM 6
WE CONSTRUCT Company has entered into a very profitable fixed price contract for constructing a high
rise building over a period of three years. It incurs the following cost relating to the contract during the first
year.
Cost of material 5.0 M
Site labor cost 4.0 M
Agreed administrative costs as per contract to be
reimbursed by the customer 2.0 M
Depreciation of the plant used for the construction 1.0 M
Marketing costs for selling apartments, when they
are ready 2.0 M
Total estimated cost at completion of the project is P36.0 M (ROUND-OFF POC - ex. 46.45 is46%)
Required: 8. Percentage of completion

PROBLEM 7
On January 2, 2020, JERICHO BUILDERS entered into a contract to construct a building for P30M.
During the construction period, many change orders were made to the original contract. All of the
changes were accepted by both the customer and the contractor. The following schedule summarizes
the change orders in 2020:
Cost Estd.
incurred Cost to Contract
in 2016 complete Price
Basic contract 6.0M 21.0M 30.0M
Change order # 1 37,500 37,500 93,750
Change order # 2 37,500
Change order # 3 225,000 225,000 450,000
Change order # 4 93,750 75,000
The company uses the percentage of completion method.
Roung-off GPR, ex. 25.6667 to 26%.
Required: 9. Gross profit to be recognized on December 31, 2020 (rounded off to nearest peso)

PROBLEM 9 - Multiple choice

6. The computation of the income recognized in the second year of a four-year construction contract
which is accounted for using the percentage of completion method based on the:
A. Cumulative actual costs incurred only
B, incremental cost for the second year only
C. Latest available estimated costs
D. Estimated costs at the inception of the contract